View more on these topics

Double bottom on the charts

It was all banks last week. If it wasn’t RBS disclosing the largest annual loss in corporate history, then it was the introduction of the Government’s asset protection scheme.

Or it was more speculation on whether president Obama will be forced into nationalising CitiGroup. Some of these banks are bigger in output terms than many countries. I recall some research years ago that suggested America’s GE would be around 26th in country rankings on GDP. That’s bigger than Austria.

We now know, that some banks are too big to let fail. Actually, most banks are probably too big to let go these days. It was, after all, the failure of Lehman Brothers that triggered this whole damned crisis of confidence.

They were not considered so big that their collapse would bring down other US banks but allowing them to go created the atmosphere of fear with which we have all had to live with in recent months.

Extreme times call for the contribution of someone with grey hair and at least the appearance of sagacity to speak to the nation and reassure them all is well. My phone has been hot with calls to explain – in words of one syllable, please, and no jargon – what precisely is going on. As if I really knew. These are, after all, extreme times and bear little resemblance to crises I have endured in the past.

Or do they? There are distinct parallels to be drawn with the mid-1970s. A period of high inflation (which admittedly got worse) was accompanied by a banking crisis and pressures on the government’s finances that drove Chancellor Dennis Healey into the arms of the International Monetary Fund.

You only have to look at the commitments being entered into by the Government today to realise that some similar event could be on the cards sooner rather than later.

Interestingly, National Westminster Bank was one of the financial institutions rumoured to be in serious trouble then. They survived – only to be absorbed by the Royal Bank of Scotland, today’s basket case in terms of great financial names. Oh how the mighty are fallen.

But it’s an ill wind. I read in a survey examining the state of the wealth industry that IFAs are once again in the ascend- ancy as high-net-worth individuals eschew banks as being too risky.

The difference is this time round we are all interconnected around the globe. One falls, so fall we all – or that is how it feels. But that is taking the wider economic picture.The narrower, financial arena is grabbing the attention just now. By and large, the contagion is limited to the developed world – and not all of the banks operating in the “have” economies are in the dire state of RBS or CitiGroup.

My chartist chums say we are on the way to establishing a double bottom. If they are correct (and it goes without saying that this second downward spike may not yet have run its course), then we may find markets improving at the same time as sentiment starts to pick up and other indicators take a turn for the better. Oil, for example, bounced off the bottom last week. Time to dust off the buy lists?

Brian Tora (brian.tora@centaur.co.uk) is principal of the Tora Partnership

Recommended

European Opportunities: 'It’s nice when stock selection results in a macro tailwind'

Amid significant macro headwinds in August, Mark Page explains why his fund’s focus on stock selection has helped it outperform a falling market in August. BESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswyBESbswy

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment