Five things investors learned this week

18th May 2013

1) The City of London may face a crackdown in its listing requirements with chair of the Business select committee Andrew Bailey MP leading calls for tighter restriction on companies listing in the UK in the wake of the problems at troubled miner EHRC as the Financial Times (paywall) reports. It may be of interest to those with FTSE tracking products whose funds will have automatically included any significant listings whether controversial or not.

2) The M&G Recovery fund manager Tom Dobell believes BP is the victim of a regulatory shakedown hampered by US interests and “spineless British politicians” as the firm attempts to move on from the disaster and improve its share price as he tells trade website Investment Week.

3) The European Banking Authority has widened the scope of its City bankers’ bonus cap to all those earning more than euro 500,000. Under the proposed rules, bankers cannot be paid more than 100 per cent of salary or double that with explicit shareholder approval. It may increase the numbers affected tenfold as the the Guardian reports. Some fund managers say firms have allowed remuneration to get out of control, yet the City will argue this is a misguided attack.

4) The Governor of the Bank of England Mervyn King was in relatively bullish form at his final inflation report saying growth would be a little stronger and inflation a little weaker as reported in this  Guardian video.

5) Finally, this is an excellent viewpoint from Katherine Rushton in the Telegraph who analyses JP Morgan boss’s Jamie Dimon’s threat to quit if he loses the chairmanship of the bank though he would still be CEO. Shareholders decide at a meeting in Florida on Tuesday.

16 thoughts on “Five things investors learned this week”

  1. dutch says:

    Rents are pretty static in my neck of the woods-Midlands.In the mid 90’s you could rent a nice two up two down in a good area for £450pcm.Currently,the same house would be about £600pcm.You can see why the banker shills prefer rental equivalence.

    I read an ONS paper a while back stating that rents had risen 8% from 2008-2013-that obviously would include Londinium.Outside of the capital,landlords are struggling for pricing traction given tepid growth in public sector spending,higher food costs and lower disposable incomes.

    ‘Those of us who have to eat to live- a group which apparently excludes central bankers and their media hangers-on-‘ …:-)

    1. Anonymous says:

      Hi Dutch

      The rental picture seems to be one of low/no price rises wherever you look, at least in the private sector. This reply to me on twitter is along the same lines as yours.

      ‏@NotGiacomo 7h

      @notayesmansecon on low rental inflation, does match my experience (zone 1 london) – renewed a 1yr lease w/ no rent increase, plenty on mkt

  2. Forbin says:

    Hello Shaun,

    to answer the question

    ” I am not sure how else you define something as incompetent.”

    For the BOE it appears to be a Kinghthood…….

    Forbin,

    1. Anonymous says:

      Hi Forbin

      Ha yes! I can help out a little more with the size of Charlie Bean’s pension fund as the 2014 Bank of England accounts were published today. They no longer publish the numbers -it appears that someone has noticed my publicising of them- but if one uses their methodology then one gets to £4.25 million. Shame the pensions lifetime allowance for everyone else is £1.25 million…

  3. Anonymous says:

    A housing boom that official inflation fails to record, this sounds like a repeat of a previous decade but starting from a much worse debt and affordability position.

    Prince – Party like it’s 1999

    1. Anonymous says:

      Hi ExpatInBG

      Prince is getting a few mentions at the moment as Little Red Corvette was one of the clues/questions on BBC 4’s Only Connect last night. As a fan of that song I was on it in a flash!

      We keep getting this cycle Again and Again just like Status Quo predicted! Even the name of the band tells the same story…

  4. GusBmth says:

    The inflation announcement the Bank of England definitely won’t be trumpeting…

    ‘Consumer price inflation dropped to 2.9% in May, from 3.5% in February and 4.4% in November of last year – according to the Bank’s own large scale survey of respondents’

    http://www.bankofengland.co.uk/publications/Pages/other/nop.aspx

    This is a significant improvement, but the level is still way above the official measures of inflation, the Bank’s target rate of inflation and wages growth.

    No wonder then, that only 18% believe the recovery is benefiting them, according to the Guardian/ICM poll

    http://www.theguardian.com/society/2014/jun/16/insecure-britain-poll-economic-recovery-immigration

    1. Anonymous says:

      Hi Gus

      Thanks for reminding us all of the inflation expectations numbers. They suggest a grim future for real wages if these numbers come true. It has been ages and ages since the inflation expectations numbers were anywhere near the target.

  5. Anonymous says:

    What doesn’t help is the whole subject of housing is covered by the media in such a circular, myopic way.
    We are told that we don’t have a house price bubble, high prices are down to a chronic lack of supply and the problem is going to be addressed. In fact Osborne was saying just that very thing again only today.

    We hear politicians saying a variation of the ‘the only way to bring down the price of housing is to build more houses, and that is what we’re doing’ line every month when the price increases are announced.
    If that is the case then don’t we have a house price bubble already?
    If they recognise the price issue is a problem and their answer is to ‘free up the planning process’ why isn’t more being made of the fact that people buying now are lumbering themselves with an asset that might not be worth the price they are paying for it?

    In order to buy any kind of property pretty much anywhere in the south of the UK you have to be a professional couple on decent, high salaries. Many of your peers and everyone lower down the income scale simply won’t be able to afford it.
    Don’t these lucky new home owners ever stop and think that in order for all these other people to get to where they are the price of housing is going to have to fall?
    Do the people lending them the money ever consider that?
    Wouldn’t the result of that be the current property bubble ‘popping’?

    The media employs a small army of economic journalists that have access to the chancellor and the treasury yet they never seem to want to drill down into the detail of what lies behind the bland sound-bite – singular, the same line over again for the last 6 years – they are served up with.
    What are we getting ourselves into here?
    No-one seems able to ask the serious, hard questions that need answering.

    1. Anonymous says:

      Hi WilliamOne and welcome to my part of the blogosphere

      You make some good points. It is indeed always “groundhog day” on the subject of house building for our political class. All of our major parties have now made promises in government which they have not kept. I wrote about the Garden City in Ebbsfleet recently when the numbers were being trumpeted by the Coalition government only to spot they were less not more than they had promised before! Even worse I spotted Ruth Kelly making claims for the same area for the preceding Labour government and so the cycle continues…

      It is my opinion that the journalists at the major media organisations are unwilling to run the risk of losing their place in the interviews and opportunities to ask questions and therefore feed the process. Someone must surely spot they have been told this before!

  6. Noo 2 Economics says:

    Hopefully, the MMR and reduced HTB scheme will begin to take the steam out of this property inflation, we won’t know for a few months. If it doesn’t and rates start going up, then given the abysmal wage increase story they won’t have to go far before the latest tranche of new buyers start handing the keys back – unless the Government dreams up an even more dastardly plan to keep the plates spinning.

    I fear the GBP is grossly overvalued by about 12% – 14% and when the market wakes up (probably next year as GDP growth slows) there will be much gnashing of teeth as inflation replicates Jimmy Webb’s song Up up and away.

    1. Anonymous says:

      Hi Noo 2

      There are some apochryphal reports of a softening in Central London house prices lately, but of course in such a heated environment it will take a while for us to see a change. Of course it tells us little about the rest of the country. There the issue is that as there are much fewer foreign buyers it means domestic buyers are paying more with relatively stagnant wages.

      Even the arch Dove David Miles hinted at future base rate rises today. So there is speculation that tomorrows minutes will show that someone on the MPC voted for a base rate rise. Of course it could also show that they ave all decided to say “Yes Mr.Carney Sir” like they did with Forward Guidance.

      1. Noo 2 Economics says:

        Shaun,
        I think there is one other thing which should be considered – the UK appears to be paying down it’s private debt.

        If this is so then rate rises may be able to be tolerated by mortgagees longer than I expect as they benefit from lower debt thereby freeing up more weekly savings to be diverted to increased mortgage payments due to rate increases (and of course their increased interest on personal loans etc they have been paying down).

        Indeed, the extra weekly savings as a result of paying down personal debt may be offset by increased interest rates but may not result in defaults as I suggested earlier.

  7. Anonymous says:

    Great analysis, Shaun.

    As far as an inflation measure appropriate for central bank
    use is concerned, the RPI ex mortgage interest ex council tax is probably the most reliable indicator there is. It showed a 12-month rate of change of 2.5% in May, down from 2.6% in April. With an adjustment for formula error of 0.7 percentage points, this would imply an inflation rate of 1.8%, so for the moment at least, it is harder to make a case that adjusting for housing price inflation, inflation is above 2%.

    The inflation rate for this series has been going down pretty steadily since August but it will almost certainly increase in the next two months. There was a decline in the index in June 2013 and July 2014 was flat, so even if there is the same anemic 0.1% growth in prices in June and July 2014 as in May, the 12-month rate of change should go higher.

    I noticed that UK holidays was one of the main contributors to the change in inflation for leisure services. There is no difference in the way these holiday indexes are analyzed than the other CPI components, although
    the monthly changes for the UK and foreign holidays indexes are not really monthly changes in any meaningful way. The methodology for these series should really be revised. Andrew Baldwin

  8. Anonymous says:

    Hi Pavlaki

    You have chosen a good day to ask about petrol prices at the pumps because we get an update on Tuesdays! Petrol prices are 4.6p lower than in this week in 2013 and diesel are 4p cheaper. If we allow for the influence of taxes (duty is 58p and VAT 20%) on so much of the price is that so out of line?

    One way we have had a gain is that I notice that US CPI rose to 2.1% which contrasts with our 1.5% not so well and is another measure of the effect of the £ rise.

  9. Anonymous says:

    Sterling bought 1.45 EUR in 2007 and is much lower now.

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