The Week
The Week, 16/01/09
Back to square one
Back to square one
Shares in London have stabilised this morning although the news continues to be bleak. The market swings wildly yet ends up going nowhere.
This is a phenomenon that we have seen for four or five months now since the Footsie started trading at around 4,100 points. We have been below 3,800 and above 4,600, with the sort of trading range you would expect to take an entire year being achieved in just a week, but sooner or later we settle back into the middle.
Shares soared in the first six days after Christmas and I started to doubt my view that the Footsie would not break far above 4,400 points before profit takers moved in. Once the bubble burst, though, shares fell back sharply. Now we are back to square one.
There is some comfort to be taken from recent events, even so. Despite the nasty tumble of the past few days, the market does seem to have found its floor. Every day with the Footsie above 4,000 points is another day alive.
Compensation culture
The Daily Telegraph covered itself in glory by exposing, years before anyone else would take notice, the mismanagement of Equitable Life that eventually led to its demise. That campaign brought attacks from the Equitable board and risked the scorn of the investors.
Rather less commendable, though no doubt much more popular, is the Telegraph’s campaign for ‘justice’ for those Equitable Life policyholders who have not died in the intervening years.
Justice could only come from those Equitable directors who made the unkeepable promises and that is not going to happen. Yes, the regulators could have put a stop to it but it was not the regulators who cheated the policyholders. It was the Equitable board at that time.
Bailouts simply encourage others to apply for bailouts. I have much sympathy with the Equitable Life policyholders who were cheated but I cannot feel they have a greater claim on taxpayers’ money than anyone else who has been badly done to.
All investments carry a risk. Always be ready to bail out rather than be bailed out.
Me, too
If we are to talk about compensation, let’s start a fund now for the wretched Lloyds TSB shareholders who foolishly voted to take on the failed HBoS and its toxic debts. Despite the squeals of HBoS shareholders (who also want compensation, naturally, just like those who threw money away in Northern Rock) this was not a case of Lloyds getting its hands on valuable assets cheaply. This was a case of Lloyds overpaying for debts that will drag it down for years to come.
Doubts were voiced this week about the effects that this deal will have on the merged entity. It’s a bit late now. This column was among those that pointed out the horrors of the deal for Lloyds’ shareholders before they voted for the suicide pill. The lesson is, get out when things go wrong, don’t stick around hoping someone will rescue you from your mistakes.
Bank of Toxland
If you are bemused by plans to set up a ‘bad bank’ into which all the toxic waste will be poured, so am I. The bad bank will, I fear, simply be just that, a bad bank. How could it be otherwise?
If the government is to take over all, or most of, the bad debt currently held by UK banks then one of two things must happen: a) the bad debt is written down to miniscule levels, leaving balance sheets in no better shape, or b) the government overpays for the bad debts, lumbering the taxpayer with the bill.
Neither idea is appealing. However, the government may just be tempted to roll all the rubbish into Northern Rock to make one decent sized cesspit. That way it will never make a profit out of Rock and will therefore not provide ammunition for Rock shareholders who think they should be compensated for holding shares in a bankrupt bank.
More reasons to be cheerful
Let us end on a happier note. Among the carnage of the High Street, supermarket group Morrisons is back in business. The point for investors to note is that however bad things are, someone somewhere is doing well.
Rodney Hobson
Author, Shares Made Simple and Small Companies, Big Profits