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Recession watch – Sell in May and go away (for 2 yrs?)

There’s an old stock market adage: Sell in May and go away… and I’ve watched performance over the years as the reporting seasons close and the fund managers pause for thought during the summer. It can be in many fund managers interests to see the indices go into the doldrums so they can pick up bargains that surge ahead…

This year, I predict, will be a time when many fund managers catch up on cinema they’ve missed over the past years. They will be sitting on their cash pile and doing alot of thinking. There’s no rush to inject cash into investments that are going to tread water through the summer season at best – or, given the loss of momentum, actually sink further until a final quarter burst starts in September as there’s a run to close the year’s position with a flurry.

I felt I was witnessing another pause in activity around Easter? Normally, Easter is a disruption in the year’s ramp-up, but this year everybody took a fortnight’s holiday around the bank holidays and are only just lumbering back into action for month end.

For my normal blog optimism, see Luke Johnson’s FT column today – his gist: stop fretting and start a business. JFDI.

“I predict that many great companies will be started in the next year or two, by those brave enough to believe in the futre, energetic enough to seize the day and optimistic enough to deny the possibility of defeat.”

For my Twitter gloom (well, I thought I’d try to keep both mediums interesting by taking divergent views), read Martin Wolf’s FT column today.

“…we are living through a globally synchronised recession that coincides with a huge financial crisis that emanates from the core countries of the world economy, particularly the US. This is a recipe for a long recession and a weak recovery. Whatever is done about the financial system, “deleveraging” is the order of the day (see chart). The UK’s position in this looks dire. But that of the US looks quite bad, too, even compared with that of Japan in the 1990s.

For better or worse, the authorities have decided to bail out their financial systems with taxpayer money. Almost all the affected countries should be able to afford to do this, at least on the IMF’s numbers. So now, having made the fundamental decision to prevent bankruptcy, they must return their financial systems to health as swiftly as they possibly can.

Even so, that will prove to be a necessary, not a sufficient, condition for a return to robust economic health. The overhang of debt makes deleveraging inevitable. But it has hardly begun. Those who hope for a swift return to what they thought normal two years ago are deluded.”

Both these views are valid. The macro economic picture is a total mess with the IMF predicting that someone needs to magic up $25,600billion to fix the fantasy finances we developed to 2008. But this means that, on an individual basis, there are huge opportunities appearing for businesses to service the new world order as it emerges.


Credit crunch explained in simple terms

I was sent this viral with an inexplicable German setting – but a very decent explanation of all the financial engineering. Alternatively or additionally, here’s a link the a very decent FT article today

Heidi is the proprietor of a bar in Berlin . In order to increase sales, she decides to allow her loyal customers – most of whom are unemployed alcoholics – to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing numbers of customers flood into Heidi’s bar.

Taking advantage of her customers’ freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi’s borrowing limit.

He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank’s corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by
the drinkers at Heidi’s bar.

However they cannot pay back the debts.

Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.

The suppliers of Heidi’s bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.

The funds required for this purpose are obtained by a tax levied on the non-drinkers.

Here’s a pic of perhaps what Heidi might look like:

alcoholic by nottobefound

Hulu, Blu-Ray, Kangaroo, iPlayer… winning formula?

So, YouTube has gone the way of Ebay… it’s peaked on creating its jumble sale of content, having arrived as a maverick pirate through the low end. Like Ebay, YouTube stormed the market with its refreshing easy-to-use internet dazzle. We lapped it up. They ramped up their valuation and made paper fortunes. But, Ebay doesn’t want to major on second-hand crap and collectibles any more. There isn’t much margin, there’s the odd ethical dilemna, and folk don’t generally go back for more and more and more.

YouTube, having started out on happy slapping and student animation – as well as the requisite You’ve Been Framed funnies – is now scrabbling to show respectable and high quality video.

Meanwhile, the fast followers Amazon Shops to Ebay and now Hulu to YouTube… are stealing the march.

Hulu is only available in the US at the mo. But, it’s filling the slot we have in the UK with Kangaroo and iPlayer… turning the web into an alternative delivery channel for broadcast-quality epics.

The FT, and elsewhere in the blogosphere, has trumpeted that Hulu is now matching YouTube on ad revenues… it’s not pirating videos but has deals in place with NBC, Sony, Fox, Viacom.

The grown-ups do bite back!

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