I don’t know much about stocks and shares, but judging by the BBC website, it think The Legal and General Group must be one to watch:
Archive for the Finance Category
The October Country
Posted in Finance, Literature with tags Ray Bradbury, Stock Market on October 17, 2008 by telescoperI don’t know why I stopped reading science fiction and fantasy stories. I don’t know exactly when either. Perhaps it was a gradual thing to do with getting older. But when I was a teenager that’s the sort of thing I read all the time. I was a big fan of Michael Moorcock and read book after book of his stories, from the swords and sorcery novellas to the amazing End of Time series, and even the trippy psychedelic 1960s adventures of Jerry Cornelius. I enjoyed Tolkien, Mervyn Peake, Asimov, Arthur C. Clarke and many others which I usually binge-read by buying everything I could find by a given author and ploughing through them one after the other.
One of the authors I devoured in this way was Ray Bradbury, and his books are among the few that I still like to re-read from time to time. To be honest, I wasn’t all that keen on the pure science fiction books like The Martian Chronicles, but I loved his collections of macabre short stories. Perhaps it’s because I now know how difficult it is to write in that genre that my appreciation of his story-telling skill has if anything grown with time.
I was watching the news last night about the continuing tailspin in the world’s stock markets and it reminded me of one of my favourite collections of Ray Bradbury stories, The October Country. I rummaged around in the stacks of old paperbacks I still haven’t got around to putting on shelves – mainly because I haven’t got around to buying enough shelves – and finally located my copy. It’s a weirdly eclectic mixture of the whimsical and the frightening. The October Country of the title isn’t a specific place. It is many places: “a picturesque Mexican village where death is a tourist attraction; a city beneath the city where drowned lovers are silently reunited; a carnival midway where a tiny man’s most cherished fantasy can be fulfilled night after night. The October Country’s inhabitants live, dream, work, die–and sometimes live again–discovering, often too late, the high price of citizenship. Here a glass jar can hold memories and nightmares; a woman’s newborn child can plot murder; and a man’s skeleton can wage war against him. Here there is no escaping the dark stranger who lives upstairs…or the reaper who wields the world.”
What binds the separate tales together is the way Bradbury conjures up an atmosphere that is both autumnal and alien, both familiar and unnerving, like that of a long-forgotten room where dust gathers on lost artefacts of the past.
But what does this have to do with Stock Markets?
The baffling thing is that the greatest episodes of spine-chilling terror that grip the stock market from time to time also always seem to happen in October. The great Wall Street Crash of 1929 happened in October. More recently, the 1987 crash known Black Monday happened in the same month. Now, in 2008, although the credit crunch has been with us for a significant time, the most dramatic drops in share prices have also been in October.
In order to find the answer to why this is the case I went to Wikianswers and discovered somebody has already posted the question, but so far there have been no answers.
Whatever it is, something about October seems to give investors the jitters.
I blame Ray Bradbury.
The New Inflationary Universe
Posted in Finance, Science Politics on October 14, 2008 by telescoperAmong the bits of economic information released by the Office of National Statistics today is one item that academics in all disciplines wanted to hear about: the value of the Retail Prices Index (RPI) in the UK for September 2008, which turned out to be 5.0%.
The reason for the fascination with this number is that, in an unusual spasm of farsightedness, the University and College Union stipulated that the final stage of the pay deal it negotiated in 2006 would be applied in October 2008 and this would amount to 2.5% or the RPI whichever is the greater. Two years ago it seemed a very different world, and 2.5 % seemed to be much the likelier eventuality, but energy and commodity prices surged last year and the RPI now stands at double that figure. So we’re all set for a 5% pay rise this month, although probably we won’t actually get any more money until the November pay packet arrives.
It would have been even better had UCU chosen the Consumer Prices Index (CPI), which has now overtaken the RPI and stands at 5.2%. This is the governments preferred measure of inflation, which is based only on the price of consumer goods and household utilities, while the RPI includes other items such as mortgage costs and transport costs.
At least in the short-term, this seems good news for all academics in UK universities.
But even in paradise there was a serpent, and there is a significant danger that some departments’ balance sheets will suffer very badly from these extra salary costs. Many already operate on very tight margins. In the longer term there may be mergers and closures followed by redundancies. Also since the research councils’ cash allocations for the next few years are already fixed, an increase in salaries over that already accounted for will mean a corresponding reduction in the number of positions that can be funded, which is bad news for younger people looking for PDRA positions. Given that the Science and Technology Facilities Council‘s budget wasn’t very generous in the first place, causing a crisis in funding for astronomy and particle physics research the extra wage demands are likely to cause further strain.
Still, a 5% pay rise just before Xmas will be good while it lasts.
Icelandic Sagas
Posted in Biographical, Finance with tags Experiment Marathon, Iceland on October 7, 2008 by telescoperI read in the news today that the Icelandic government has taken over a second of its leading banks in an attempt to stop the total collapse of its economic infrastructure. Last week it took over the country’s third largest bank, Glitnir, to prevent it collapsing as a consequence of bad debts and this week it has nationalised Landsbanki, the second largest. This particular one brings Iceland’s imminent bankruptcy closer to home as hundreds of thousands of savers in the UK have cash tied up in either Icesave or Heritable, which are divisions of Landsbanki. The only private Icelandic remaining is Kaupthing, which also has a UK operation called Kaupthing Edge. This bank claims to have minimal exposure to toxic debt, but it remains to be seen whether it can avoid a run on its deposits that will surely lead it into oblivion too. I am an interested party in this case, as I recently bought some of its fixed rate high-interest bonds. This may turn out not to be the best decision I have ever made.
Iceland’s economy seems to be a microcosm of the current world situation. A decade of incredible growth built on speculative financial operations abroad led to growth beyond the wildest dreams of such a small country. With a population of only just over 300,000 – that of a small English city – most of whom live in the capital Reykjavik, this boom generated a huge increase in living standards for its own people and created a new generation of Icelandic billionaires. Now that bubble has well and truly burst. The country as a whole is on the verge of bankruptcy, its currency has fallen through the floor, and inflation is rampant.
Iceland may have a reputation as the one of the hottest destinations for a weekend of partying, but it seems to me that it’s about to suffer a sudden and very chill winter.
I had the opportunity to visit Iceland this May in order to participate in an event called the Experiment Marathon, which is one of those artists-meet-scientists events that are either excruciatingly terrible or intensely enjoyable. Held in the Hafnarhus – Reyjkavik Art Museum – the contributions included scientists talking about science or doing experiments live in front of the audience, alongside artists talking about or demonstrating their work.
I am really not sure why I was invited to take part, although I suspect it was some form of administrative error. Most of the really crap things that happen are caused by mistakes, so why shouldn’t the good things also happen that way?
Anyway, I gave a talk about the cosmic microwave background. My “experiment” was a television set that wasn’t tuned properly producing a screenful of static. I pointed out that some (actually not that much) of the buzz was coming from the beginning of the universe. Pretty lame as a gimmick, I know, but it seemed to go down quite well with the audience and I had some nice questions and comments at the end of my 20 minutes. But I also got to meet quite a few artists and other luminaries, including Brian Eno (who celebrated his 60th birthday at the festival) and Dr Ruth. I also had breakfast in the hotel with a noted performance artist called Marina Abramovic who I’m ashamed to say I’d never heard of. I didn’t actually know who she was until much later.
Even better than this I had a sort of VIP pass which meant that I got to go to a couple of wonderfully boozy receptions, including one at the President’s house, and hang out with the in-crowd at some of Reykjavik’s nightspots, although at one of them I had to listen to some experimental music that sounded like what I imagined to be played to prisoners at Guantanomo Bay. Being so far North the nights are very long which definitely added to the enjoyment, especially since the few days I was there were blessed with lovely sunny weather. Perhaps even more importantly, I don’t remember having to pay for anything at all, drinks included. They even paid me a fee! (However, they paid it in Icelandic Krona, which I never got around to cashing, so it’s probably not worth very much by now.)
It goes without saying that I formed a very positive opinion of Reykjavik as a city full of energetic and creative people who know how to have a good time: it has its own opera house, countless restaurants and bars and several excellent museums and art galleries. But at the back of my mind I was wondering how such a small country can find the money to sustain such a level of artistic and musical activity as well as lavish personal consumption. Now at last I have the answer.
It can’t.
Critical Phenomenon
Posted in Finance with tags Physics, Stock Market on September 30, 2008 by telescoperI turned on the TV last night when I got home and learned to my amazement that the US House of Representatives had voted against the package of financial measures assembled by the Treasury Secretary, the nice Mr Paulson, to deal with the Credit Crunch. As news broke the US Stock Market fell and by its close was 7% down. Pundit after pundit appeared on the small screen offering opinions about why Congress had said no and what would happen next. The really scary thing is that it is clear that there is no Plan B.
Overnight, asian stock markets fell and this is sure to follow in Europe and especially in the UK where so many of the leading companies involved in the FTSE index are banks and other financial institutions. The FTSE index fell 5% yesterday, but it closed before the result of the US vote was known. This morning there is certain to be another drop, tearing a large hole in pension funds and putting even more severe pressure on the banks.
Much more of this and the entire economic system will be in pieces on the floor. And who will suffer? Pensioners, or those approaching retirement will see the immediate brunt but the knock-on effect for the working people in general could be catastrophic. Unless something is done quickly – and it could be too late already – we could be heading back to a Great Depression like that of the 1930s. The present situation is eerily reminiscent of the Wall Street Crash of 1929, and could even turn out worse owing to the complexity of the financial instruments now involved in trading and the speed at which panic can propagate through the digital economy.
I suppose one can’t really blame the politicians entirely. Some congressmen voted against it for understandable reasons, primary among them being that it was using taxpayers money to bail out the institutions responsible for making the mess.The Republicans, on the other hand, seem to have voted against it on the grounds that it was too much like “socialism”. Maybe it was, but it was also pragmatism. I’ll never have any time for any politician who is scared of doing something right because it has the wrong kind of name. In any case governments these days have little chance to really influence global capitalism, and that even goes for the USA. It was never clear the Treasury plan would work anyway. Any surge resulting from its approval could well have been no more than a stay of execution.
Looking at economics as a physicist is probably not a very useful thing to do. There are no conservation laws for money, for example. Otherwise it couldn’t have turned out that everyone is in debt to everyone else. But I do think that one identify in these events the character of a phase transition. For many years the financial markets have lived in a false equilibrium, and now they have reached a critical point and are about to collapse into a different state. After the 1929 crash, which overall amounted to a loss of 89% of the peak market value, it took until 1954 to recover (in cash terms). The parameters of the world order are about to change, but what is going to follow is anyone’s guess.
Regardless of the vote in the House of Representatives, some form of transition was inevitable. It was only ever a question of when. All the years of economic growth we’ve had based on housing bubbles and lax credit is about to turn into a major crash which could well lead to huge changes in the political arena too, just like it did in the 1930s. It may be many years before order can be restored.
But it’s our own fault. The industrialized nations have been living beyond our means for way too long.
We deserve it.
Selling Shorts in the September Sun
Posted in Finance with tags Gambling, Stock Market on September 19, 2008 by telescoperI’ve been following the wild instabilities in the stock market over the last few weeks with a mixture of amusement and despair. On the one hand it’s not at all unpleasant to see some overpaid city slickers brought back down to earth, but on the other it’s alarming to see how the world economy depends so strongly on a the whims of a bunch of erratic traders.
After what seems like weeks of falls on the stock market, shares suddenly leaped up by about 8% this morning on news that the government had banned “short-selling” on a particular set of shares. As I understand it, short selling basically means you borrow shares in a company and then sell them in the hope that the price will fall. When it does, you buy back the shares at a lower price, return them to wherever you borrowed them from, and pocket the difference. Basically it’s a bet on the future behaviour of the shares. This violates one of my two rules about gambling, namely that you should only gamble with your own money and it is a bit surprising it was ever allowed anyway.
On the other hand, even this is a bit more transparent than the practice of buying and selling derivatives, where you don’t even have to possess (however temporarily) the thing you sell. This kind of activity is what hedge funds do all the time. They operate on the principle that you can make different kinds of bets at the same time in such a way as to guarantee a win. Bookies on a racetrack are smart enough to ensure that a punter can never make a combination of bets that ensures a profit, but this is not the case with shares and other financial dealings.
Anyway, apparently the reason why banking shares have plummetted recently is that there’s been a lot of short selling and the government decided to stop it, at least temporarily. I suppose it’s good that they are actually trying to do something to stop the chaos, but I think the underlying problem is that the UK and other western economies have been living beyond their means for many years and, despite best efforts to paper over the cracks, some kind of retribution is inevitable. It wouldn’t surprise me if next week the FTSE dived again as emerges that hedge funds weren’t really responsible for the problem in the first place.
Maybe the reason why the FTSE has really been falling has been overlooked. Over the last two years since the credit crunch became apparent, the weather in the UK has been very poor. Two summers of heavy rain may have had more influence on the optimism of city traders that interbank lending rates. Perhaps that’s the kind of liquidity that really gets them down (geddit?). This week the weather is nicer, so shares have risen. I’m sure you can correlate the FTSE index with the weather and a result at least as significant as with any other econometric indicator.
I’ve got a little bit of personal interest in this because, although I’m not really a player on the stock market, I do have a 10-year investment plan that matures at the end of October this year. If I’d been able to bale out this time last year I would have made a healthy profit on it, but now it looks like this years losses will wipe most of that out. Even if they don’t, it’s been a white knuckle ride so when I do get the cash I’ll probably put it somewhere much safer, allthough I don’t know what is really safe these days and I’m maxed out on grannie bonds.
In the meantime, I’m just left with the feeling that so much of our modern economy is not only artificial but also impenetrable to ordinary people. In a sense it doesn’t matter very much if a few city tossers get burned, but the fallout from the ongoing Credit Crunch will have a real impact on the lives of ordinary people through redundancies and loan defaults as unsustainable companies go to the wall. We all fool ourselves that we live in a democracy where we can influence the way the country is run, but the fact of the matter is that governments really don’t have the resources to control or even influence global capitalism to any great extent.
Surely there has to be a better way…
Gambling for Losers
Posted in Biographical, Finance with tags Gambling, Stock Market on September 16, 2008 by telescoperIn order to encourage fresh-faced school students to pick a Physics degree out of all the possible courses they could University, one of the most persuasive arguments admissions tutors have always trotted out is that it would qualify them for highly paid jobs in the financial services sector. This argument is backed up by surveys of graduate destinations, and is explained by the fact that banking and insurance companies are crying out for numerate people with the ability to analyse complex and often chaotic systems with quantitative rigour.
The most recent episode of the so-called “Credit Crunch” is the fall-out from the collapse of the Lehman Brothers bank which caused heavy falls on Wall Street yesterday and corresponding panic overnight on Asian markets. Apparently far-eastern stocks were affected by the sudden realization that many companies had liabilities arising from the Lehman crisis. It’s interesting that this was all hidden until the bank actually folded…
Anyway, with inflation rising, shares falling and the economy stuttering into recession I wonder how many recent physics graduates may be regretting their choice of career. The rewards may be high, but the risks are high too. I’m glad I remained a physicist, even if my own portfolio appears to be flying south for the winter.
Not that I’m sanctimonious about gambling, as long as (a) it’s with your own money and (b) you don’t bet more than you can afford to lose. I like to bet on various things, and I have a fool-proof system. I usually only bet on events where there are only two outcomes (e.g. football matches) and where I actually support one of the two teams. I bet on the opposition to win, on the grounds that if my team wins I lose the bet but am happy anyway. If the opposition wins then I am financially compensated for my loss.
Being a supporter of Newcastle United, this strategy has stood me in good financial stead because a bet on the opposition is more often than not a good one. Last Saturday’s embarrassing home defeat to lowly Hull City resulted in an especially handsome dividend.
On the other hand the strategy doesn’t always work. A few day’s previously I made a substantial investment on Croatia to beat England in their World Cup qualifying match (in Zagreb). The odds weren’t great and I was sure that Croatia would win. Surprisingly, England won 4-1 and I lost £100.
You can criticise my interest in gambling if you like, but I think this form of betting is more more reputable than the murky dealings taking place on today’s stock markets. And if I happen to lose a bet, it’s not going to make a big hole in anybody’s pension.
In the Dark 