News:A Whiff of Cordite
Forgive me this week for a bit of personal commentary – but the events and feelings of the past few days I think should be recorded for more proper recollection once the dust of this destruction has had time to settle.
Last Monday was an astonishing morning. These days I am used to having the odd disaster being thrown at me for comment but to have an entire egg basket of rotting financials being hurled at once was quite astonishing. Lehman’s, Merrill’s, AIG and a few other horror stories tossed in for dressing meant that by 7am on Monday morning we seemed to be having a rather surreal moment - were we dealing with a lethal game of investment Monopoly or truly a full blown financial crisis? I know it is a tired phrase – but you could not have made it up, as any of the financial “bodice rippers” could never have had such a dramatic story line.
The key issue in these circumstances is how we should react. Is it a series of single issue problems or a pathway to catastrophe? The enthusiasm for media hyperbole to create a crisis out of a drama was tempered by those responsible journalists such as Mickey Clarke and Andy Verity on BBC Radio 5’s ‘Wake Up To Money’ who had to report the events as they unfolded live on air last Monday. Many often criticise the media for inflating news into irresponsible rants, and sometimes with good cause, but here was an example of multiple events having been reported in a mature and experienced manner.
After the corporate explosions of the previous days, Thursday seemed almost to have the whiff of cordite in the air as heads emerged to survey the financial devastation around them. From headlines to reality there was now an appreciation that the great Wall Street semi-deified beasts were in fact mortal - but that with them the market fear had taken with it a weakened, but by no means bankrupt British mortgage and clearing bank.
The trading in HBOS shares on Wednesday was erratic to put it politely and, in my view, much worse. I would have regarded it as a disorderly market and one in which hearsay and tittle-tattle was acting to exacerbate an already fetid market. Although there were apparently some “firebreaks” put in throughout the day, frankly we needed to see some more direct action taken and probably the suspension of both shares (HBOS and Lloyds TSB) for the day on the basis that this was a disorderly market. The trading seemed to become a feeding frenzy of trades driving down the price based on nothing more than sentiment. This was not just the killing of a wounded animal on the savannah but the repeated slashing of knives which drove the beast into eventual submission. This was not an example of corporate efficiency but lethal damage caused by reckless trading which could and should have been prevented.
I would also point out that it was not seemingly the short sellers that the politicians and certain newspapers seemed to be blaming that caused the demise of HBOS – although they may have exacerbated the situation. Short selling is a perfectly valid investment technique, but it does need to be managed in an orderly and controlled market.
After all the concerns earlier in the year about short sellers acting on market rumours in this stock, one would have thought that there would have been extra vigilance, especially given all the news-flow surrounding it. I don’t think this has reflected well on the trading reputation of our market but we should take it as a warning for companies who feel their investor confidence might be coming under pressure. Perhaps those responsible might wish to consider the damage done to careers and families by their actions as it seems likely that tens of thousands of jobs will be lost in both HBOS and Lloyds TSB.
I might just add in some recognition of my prescient colleague Ros Price, our Chief Investment Officer, when she mentioned in early 2007 that, given the very worrying back drop of growing credit risk, she wondered whether Merrill’s might not be around in a year’s time. I think I laughed – I am not laughing now.
And finally... qualification is obviously at a premium for the good burghers of Chichester who refused to take a rubbish bin out of a stream as they had no “qualified staff”. Now I can appreciate that if this involved a Jacques Cousteau training course in an aqualung usage in deep water that there could be a problem – but apparently they had no one qualified to “wear Wellington boots” for a stream 4 inches deep. Which reminds me - I must find my degree in deck shoe management.
Have a good weekend,
Director
Seven Investment Management Limited
Article last updated: Sep 25, 2008
