Foresight Capital Partners

In addition to the development of retail banking services in Eastern Europe as detailed within the previous post 100 years of Capitalisation in 10 years, further developments are taking place in services offered to the corporate sector. In particular, yesterday Raiffeisen and Lazard announced a joint venture to offer investment banking services in Eastern Europe and Russia. The deal combines Raiffeisen extensive local network presence with Lazards expertise in Mergers and Acquisitions, and corporate finance. This deal is the first of its type, extending the range of banking services available.

In the post Third Part Effects I detailed now the sub-prime mortgage problems experienced in the US may fall over to effect other sectors of the economy and I would be looked out for such effects.

It now seems that such fall over is taking place in the US economy. Yesterday, General Motors’ Vice-Chairman Bob Lutz reported that “The [car] market as a whole has been a little weakfish. That has come as a result of the housing market problems and the mortgage industry meltdown”. In addition, to such third party effects showing up in the real economy, it is also leading to distress of financial assets. For example, Lehman Brothers used Riverside County mortgages loans as collateral for $1.5 billion of bonds sold in January 2006. Over the past year, Riverside County, California, the foreclosures have almost tripled and the lowest-rated portions of the securities now trade at 63 cents on the dollar, down from more than 100 cents in October, according to data compiled by Merrill Lynch.

With today’s data showing that new house sales plunged 8.4% in March, the biggest drop since Jan. 1989, to 6.12m, against a consensus of 6.45m, with median sales prices falling 0.3% year/year. The third party effects are only likely to become even more pronounced. Moreover, after browsing through property listing sites the rental yields available on property is still generally under 5.25% (short term interest rates) which to me implies that prices are likely to weaken further with respect to inflation. Placing additionally pressure on the underlying market which most likely will lead to further third party effects.

Yesterday morning I read through the letter written by the Head of the Bank of England (BOE) Mervyn King to the Chancellor of the Treasury Gordon Brown, and its subsequent reply. Over the past ten years the independent BOE has performed very well at its principle role of keeping inflation (and deflation) in check. However, the latest CPI report triggered an open letter when the Consumer Price inflation (CPI) moved above 3% and the BOE in essence failed in its mandate to keep CPI close to 2% (which is deemed to be within the 1-3% band). These letters though being the first of there type surprised me in the following manner:

1. The Governor failed to take full responsibility for the fact that the banks interest rate policy decisions and the banks other monetary mechanisms failed to control inflation to the required degree (see Blame me Consultant post).
2. The tone of the letter was much too chummy when the content of the letter was to report of the bank failings. The consequences of inflation when it really takes hold are dire and the treatment (namely rigid control of monetary growth e.g. 1981-1983) is painful, and the tone just failed to reflect this.
3. The letters where clearly designed for external consumption. Though the chancellor and government are by default ‘cheer-leaders’ of the economy and the modus operandi they could at least be a little more subtle.

The open-letter condition within the BOE mandate ensured over-sight and allowed the BOE to reassure the public when the monetary policy path taken failed. However, the letters exchanged yesterday just failed to do either and leaves me with the impression that neither party takes the situation very seriously.

Source: Copies of the BOE letter and its reply are available from:

http://www.bankofengland.co.uk/publications/news/2007/044.htm

I was rather pleased the other week when my journal (along with five others) was picked out within an article by Ellen Kelleher at the FT on 17th Feb 07, for special attention see:

http://search.ft.com/search?queryText=webcab&x=0&y=0&aje=true&dse=&dsz=
(login required to read full article)

The only other UK finance journal out of the five picked out was Interactive Investors, which wrote up a review of the article entitled: The best possible time to be alive. Anyway, without further ado here is a quote from the original FT article:

On the hunt for nitty-gritty technical information on the markets? Try WebCab Services Investment Journal (www.webcabcomponents.com/finance/blog). This is an interesting site if you are keen to know more about investment trusts and other closed-end funds. Run by an active private investor with a Phd in mathematics, it offers links to news that might have some influence on the market for closed-end funds. He also offers some astute ideas on investment strategies, strong stocks for income and the mechanics of investing.

Over the past century there has been a rapid rise in government regulation of just about all commercial activities. Now one way or another if a company (or individual) has to spend more time and expense on regulatory requirements, less time can be invested in delivering the products and services which its customers require. Clear historical precedents have been set for regulatory effects on limiting economic expansion and development. For example, the greatest recent period for economic expansion in the US was during the period 1900-1920, when regulation at least by today’s standard was virtually non-existent. It is also important to point out that this period saw the greatest rise in living standards in the US.

Though all sides of the political spectrum have played there part over the years in the ever increasing regulatory burden on business. The present UK government in power is due to take it one step further with the proposed “Companies Act”, which is likely to go through parliament this year. For me alarm bells start ringing as soon as I hear that the bill runs to 500 pages and contains 900 clauses. Besides this document ushering in a steady diet of box-ticking activity for UK directors, it also “codifies” UK director’s responsibility to “the impact of the company’s operations on the community and the environment”. Now taken at face value this could mean a director facing legal action over the actions of a company employee who he did not even know about.

As always such policies will be sold in the name of “shareholder protection”, and/or “consumer protection”, but as even it will be the shareholder and customers who will ultimately pay the price. Moreover the end result is likely to be fewer people willing to expose themselves to such regulatory risk, companies more inclined to relocate offshore and the only growth which is likely to result in the UK will be in the governments own bureaucratic empire.

On occasions when I have been in France, in particularly in the late 90s, when I had the good fortune to visit various Paris academic institutions, I have always been rather impressed with the vibrant creative and technically able people I have met. Moreover, as I was led to believe by such French academics the nature of the French revolution was “to return the power to the people”. For these two reasons I am rather concerned at some of the political baggage which the left-wing candidate Ms Royal, brings to the French Presidential election which is to be held later this year.

I am not trying to impose my political views from the other side on the English Channel, but as a passive observer I feel that the introduction of some of the dogmatic socialist legislation being proposed by Ms Royal, would lead to further net emigration of Frances best and brightest minds which surely cannot be seen as in the French nation’s best interests. For example, at present there are an estimated 300,000 French nationals working in the City of London who have already voted with their feet. An even more capital repressive system in France would surely only result in this number swelling further. Significantly adding to the UK economy while having an equal and opposite effect of the French economy.

What seems most surprising to me, is that Socialist policies are not only weakening the French economy, but seem at odds with the spirit of the French republic, this is “liberty”. When ever the state gets bigger the freedoms of the individual are reduced. This lack of freedom usually is sold in the name of “worker protection”, or “consumer protection”, but all such `big state’ policies boil down to the following. Some (3rd Party) government bureaucrat forcing both the consumer and producer of a produce or service, to adhere to government legislation. Where as the free market (Anglo-Saxon model) allows each parties to decide for them selves what is and is not in best interest and transact accordingly.

On this page I have collected together a number of links to useful investment blogs which I have come across:

Closed-end Funds - http://closed-endfunds.blogspot.com/
News and news of mainly US listed closed-end funds.

Quant Investor - http://quantinvestor.blogspot.com/
A Quant developers investment activity and views (incl. closed-end fund activity).

Random Roger’s Big Picture - http://randomroger.blogspot.com/
US Portfolio Managers view on portfolio management, foreign stocks (ie non-US), exchange traded funds, options.

The Big Picture - http://bigpicture.typepad.com/
A marco prospective of the investment envoiroment.

ThinkBlog - http://www.thinkequity.com/blog/
NYC equity research teams blog focused on growth opportunities.

Quantitative Trading - http://epchan.blogspot.com/
Quantitative investment and trading ideas, research, and analysis.

Contrary Investor - http://www.contraryinvestor.com/index.html
Monthly research, commentary and perspectives on the financial markets.

The Oil Drum - http://www.theoildrum.com/ Detailing development within the Energy sector.

John Kay (FT Columnist) - http://johnkay.com/ Articles on microeconomics.

To be continued…..