It’s official. The UK is out of recession.
According to the government's statisticians, the Office for National Statistics (ONS), the economy grew last quarter by 0.1%, ending six consecutive quarters of negative growth and bringing to a close the longest recession since before the Second World War.
So that's good news right? Surely it's time to roll out the bunting and crack open the champagne (well, Asti, given the current market) and put on some B.B.King?
Well not according to some.
Despite the hopes of services shaking the banker bonus tree, it seems one or two commentators are not quite ready to sing along just yet. But then perhaps that's to be expected as we languish in the post-festive-pre-payday gloom. So it seems Blue Monday has slipped into a Terrible Tuesday.
Indications are that any growth is likely to remain anaemic, and this has led some cabinet members to be reportedly fearful of taking any responsibility for something that in most scenarios would be classed as 'good news'. But then perhaps that is sensible given the possibility of a return to negative growth in Q1 2010, which would be reported statistically 11 days before the likely day of the general election, 6th May.
With the two major parties preparing to draw the battle lines along how best to sustain the 'recovery', any such figures would not exactly enhance the incumbents' self-proclaimed reputation for economic competence, a point not really helped by what seem now to be rather optimistic growth expectations for this year and next year. They can, however, take comfort from not being the only ones caught out.
So what now and what's in store for the 'fledging recovery'? Well, any sort of long-term plan would be useful. The Daily Telegraph points to private sector investment and overseas growth as areas to deliver the growth needed to rescue us from being stunted by the fiscal stimulus plans. That does not seem to be evident yet, however, and certainly nowhere near on the systematic scale seen in China, which clearly recognises the importance of scientific research and retention of knowledge as the key to its future.
Perhaps a change of perception? The Daily Telegraph talks about a two-speed global economy with opportunities being thrown up by the turmoil surrounding fiscal exit strategies.
But then perhaps we are justified in being wary of celebrating GDP growth if the New Economics Foundation paper yesterday is to be believed. With developed nations assuming continual growth, perhaps the view is just flawed. They illustrate this point with a short video called 'The Impossible Hamster'. If a hamster doubled in size every week for a year, it would weigh 9 billion tonnes – enough to give Freddie Starr serious indigestion. So why should we assume GDP should continue growing, particularly when we consider that environmental concerns may pin back the recovery over the long term?
Food for thought indeed.
So, let's look on the bright side (for the time being at least) – the days are getting longer, payday is nearly here and if Freddie feels peckish, he'll probably opt for a Chinese hamster instead. As Frankie Boyle has been heard to say, "Help yourself to nibbles – (he was our favourite hamster…..)"
AF
Tuesday, January 26, 2010
Friday, January 22, 2010
Barack to the drawing board
I have missed Barack Obama. I devoured his campaign coverage to levels of minor obsession and had grown used to seeing his face strewn over the covers of publications the world over. Recently though, it seems Obama has been hibernating. Maybe he has been finding it difficult to make it into the office due to all the snow? Or can that excuse really only apply to Londoners? Either way he has not exactly been marking his first year in office with the media frenzy many would have expected twelve months ago. But now he's back!
Obama has, some suggest, produced the sword to deliver a final blow to the Wall Street bull. Exhausted with the media frenzy over bankers' bonuses and deaf from the screams of the American public crying "kill" "kill", could this be the death of the big bank: 2010's Glass-Steagall finale?
I doubt it. It is important to remember these "Volcker Reforms" are just proposals. We are not about to see the end of proprietary banking on Monday. As with any American legislative proposal, and especially any introduced by the current president, it will be months before anything is actually set in stone and the big banks are forced into selling off their hedge funds and private equity groups. Goldman Sachs and JPMorgan can rest easy this weekend. What will no doubt follow will be months of lobbying. The Wall Street top dogs (what can I say I'm not a cat person) are getting quite used to spending time in Washington D.C. By now, they are probably thinking of the Holiday Inn on Capitol Hill as a second home (or fourth or fifth in many caes). While the rest of are still ploughing through the details of the proposals, lobbyists will be weaving loop holes that will ultimately produce very little (if any) changes to the too-big-to-fail banks. When tired of this we can watch bank share prices yoyo in front of our eyes.
This of all proposals comes at a terrible time for Obama: after weeks of laying low, he reared his head at the end of the week only to find that he has lost Teddy Kennedy's old Democratic seat in Massachusetts and thus the crucial 60th vote in the Senate that he needs to pass this or any other bill. And to really kick dirt in his face when he's down, the Supreme Court voted yesterday to lift the ban limiting banks and other powerful companies from funding and supporting political candidates. Banks don't take too kindly to their share prices falling by around 5% across the board; so although in the past Wall Street has been a major fundraiser for the Democrats (and Obama himself), I get the feeling that the millions of dollars of Wall Street's campaign donations might be up for grabs right now. Enter the Republicans with open hands…
And what will all this mean to us in the UK? Well, the BBC reports that Shadow chancellor George Osborne has come out in support of President Obama's proposals but has covered himself by assuring that there would have to be international compliance. Chances are nothing much will happen once the election is out of the way. I suggest we all take the weekend to turn our attention back to donating to the Haitian appeal. There will be all of Summer (and Autumn and Winter...) to follow the 'Obama takes on Banks' headlines.
RK
Obama has, some suggest, produced the sword to deliver a final blow to the Wall Street bull. Exhausted with the media frenzy over bankers' bonuses and deaf from the screams of the American public crying "kill" "kill", could this be the death of the big bank: 2010's Glass-Steagall finale?
I doubt it. It is important to remember these "Volcker Reforms" are just proposals. We are not about to see the end of proprietary banking on Monday. As with any American legislative proposal, and especially any introduced by the current president, it will be months before anything is actually set in stone and the big banks are forced into selling off their hedge funds and private equity groups. Goldman Sachs and JPMorgan can rest easy this weekend. What will no doubt follow will be months of lobbying. The Wall Street top dogs (what can I say I'm not a cat person) are getting quite used to spending time in Washington D.C. By now, they are probably thinking of the Holiday Inn on Capitol Hill as a second home (or fourth or fifth in many caes). While the rest of are still ploughing through the details of the proposals, lobbyists will be weaving loop holes that will ultimately produce very little (if any) changes to the too-big-to-fail banks. When tired of this we can watch bank share prices yoyo in front of our eyes.
This of all proposals comes at a terrible time for Obama: after weeks of laying low, he reared his head at the end of the week only to find that he has lost Teddy Kennedy's old Democratic seat in Massachusetts and thus the crucial 60th vote in the Senate that he needs to pass this or any other bill. And to really kick dirt in his face when he's down, the Supreme Court voted yesterday to lift the ban limiting banks and other powerful companies from funding and supporting political candidates. Banks don't take too kindly to their share prices falling by around 5% across the board; so although in the past Wall Street has been a major fundraiser for the Democrats (and Obama himself), I get the feeling that the millions of dollars of Wall Street's campaign donations might be up for grabs right now. Enter the Republicans with open hands…
And what will all this mean to us in the UK? Well, the BBC reports that Shadow chancellor George Osborne has come out in support of President Obama's proposals but has covered himself by assuring that there would have to be international compliance. Chances are nothing much will happen once the election is out of the way. I suggest we all take the weekend to turn our attention back to donating to the Haitian appeal. There will be all of Summer (and Autumn and Winter...) to follow the 'Obama takes on Banks' headlines.
RK
Tuesday, January 12, 2010
Better the Red Devil you owe
When the Glazer family took over Manchester United in 2005 the fans were in uproar as the Floridian family loaded the club with debt. The furore from the prawn sandwich brigade subsided as the Glazer's kept their heads down and Fergie led the Red Devils to three league titles in a row. However, what goes around comes around, and the interest on United's PIK loans is accumulating faster than Tiger Wood's mistress count.
Whatever Manchester United does will always generate huge attention and confirmation yesterday of its planned £500m bond has been all over the business and sports pages. In fact, while I think about it, the football community is more au fait with financial lexicon that you might expect. I vividly remember watching the telly when Sheikh Mansour took over Manchester City and thinking that a sovereign wealth fund acquisition was being discussed with alarming lucidity. Arsenal's Andrei Ashavin also displayed his financial savvy last year as he looked to renegotiate his £80,000 a week contract after being "unpleasantly surprised" by the UK's 50p tax rate for top earners.
Anyway, back to the point in hand...despite the blanket press coverage and element of doom saying from the more hysterical football fans, let's not get ahead of ourselves. By no means are United going to fall into the hands of the administrators – after all, the club also confirmed yesterday that it had recorded a pre-tax profit of £48.2m and a turnover of £278.5m for the year ending June 30. The club's success is also highlighted in the Deloitte Football Money League 2009 report, where they were ranked second in revenues, behind only Real Madrid. In fact, the report revealed that "had it not been for depreciation of sterling against the Euro, United would have leapfrogged Real Madrid." Making a profit in this market environment – and in a business as volatile as football – should certainly not be sneered at. Nonetheless, the debt burden is a real albatross round its neck, and the bond issue should go some way to ease the situation as they swap the expensive bank and hedge fund debts with the cheaper debts owed to bondholders.
The notes will be used to refinance the existing debt secured against the club rather than the PIK notes and as the FT reports, allow the club to "use up to 50 per cent of its cashflow to pay a dividend to the Glazer family, enabling them to repay a punitive payment-in-kind loan, which carries interest of 14.25 per cent." Fans bemoaning the lack of transfer activity of late to replace expensive flops such as Dimitar Berbatov could also take some comfort, as "United will also enter into a revolving credit facility to allow it to borrow an additional £75m, to be used for working capital and, probably, to help the club to continue buying players."
The United saga brings an interesting comparison to rivals, Manchester City. City have typically been regarded as United's unfortunate cousin – the pauper to their more illustrious neighbour's prince. However, since the Abu Dhabi Investment Authority's acquisition of the club, they are now armed with more funds than some countries' GDP. They've been spending money like it's going out of fashion and the ensuing battle seems to show parallels with another economic situation: a US-owned debt-laden mammoth versus an asset-rich Emirati pretender...sound familiar?
JS
Whatever Manchester United does will always generate huge attention and confirmation yesterday of its planned £500m bond has been all over the business and sports pages. In fact, while I think about it, the football community is more au fait with financial lexicon that you might expect. I vividly remember watching the telly when Sheikh Mansour took over Manchester City and thinking that a sovereign wealth fund acquisition was being discussed with alarming lucidity. Arsenal's Andrei Ashavin also displayed his financial savvy last year as he looked to renegotiate his £80,000 a week contract after being "unpleasantly surprised" by the UK's 50p tax rate for top earners.
Anyway, back to the point in hand...despite the blanket press coverage and element of doom saying from the more hysterical football fans, let's not get ahead of ourselves. By no means are United going to fall into the hands of the administrators – after all, the club also confirmed yesterday that it had recorded a pre-tax profit of £48.2m and a turnover of £278.5m for the year ending June 30. The club's success is also highlighted in the Deloitte Football Money League 2009 report, where they were ranked second in revenues, behind only Real Madrid. In fact, the report revealed that "had it not been for depreciation of sterling against the Euro, United would have leapfrogged Real Madrid." Making a profit in this market environment – and in a business as volatile as football – should certainly not be sneered at. Nonetheless, the debt burden is a real albatross round its neck, and the bond issue should go some way to ease the situation as they swap the expensive bank and hedge fund debts with the cheaper debts owed to bondholders.
The notes will be used to refinance the existing debt secured against the club rather than the PIK notes and as the FT reports, allow the club to "use up to 50 per cent of its cashflow to pay a dividend to the Glazer family, enabling them to repay a punitive payment-in-kind loan, which carries interest of 14.25 per cent." Fans bemoaning the lack of transfer activity of late to replace expensive flops such as Dimitar Berbatov could also take some comfort, as "United will also enter into a revolving credit facility to allow it to borrow an additional £75m, to be used for working capital and, probably, to help the club to continue buying players."
The United saga brings an interesting comparison to rivals, Manchester City. City have typically been regarded as United's unfortunate cousin – the pauper to their more illustrious neighbour's prince. However, since the Abu Dhabi Investment Authority's acquisition of the club, they are now armed with more funds than some countries' GDP. They've been spending money like it's going out of fashion and the ensuing battle seems to show parallels with another economic situation: a US-owned debt-laden mammoth versus an asset-rich Emirati pretender...sound familiar?
JS
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