Global Investing

Avoid financial meltdown – use a thesaurus

So it’s not just investors who are guilty of moving in a herd-like fashion.

Financial journalists use the same verbs and nouns with greater frequency as stock markets overheat but display more variety in their phraseology after the bubble bursts, a study by Irish computer scientists has shown.

Trawling through nearly 18,000 on-line news articles that mention the Dow Jones, FTSE and Nikkei stock indices between 2006 and 2010, Aaron Gerow of Trinity College Dublin and Mark Keane of University College Dublin found that the language used by the writers had become more similar in the run-up to the global financial crisis.

“Meaningful regularities” in language employed before the crash showed “progressively greater agreement” in “positive perceptions of the market”.

Financial commentaries from The Financial Times, the New York Times and the BBC as well as news wire services such as Reuters, for instance, deployed increasingly similar noun-phrases as the market overheated, possibly reflecting a “narrowing of reporting to a relatively smaller number of key events/companies.”

from From Reuters.com:

How has the credit crisis affected you?

The demise of Lehman Brothers a year ago sparked a collapse in financial market confidence and set of a series of reactions that have spread hardship into the four corners of the globe.

Reuters News has charted the key events and their impact in "Times of Crisis" -- a major new multimedia production on Reuters.com. (See it here.)

We'd like to add the experiences of Reuters readers. So, if you or your family have been affected by the events of the past year then use the comments section below to share your story.

To spend, or not to spend?

A day after Britain unveiled a multi-billion-pound fiscal stimulus package to spend its way out of recession, market analysts have been busy figuring out what it all means, in the context of a sharply slowing economy.

Nick Parsons, head of market strategy at nabCapital, has come to this conclusion:

“People need to spend less, not more, and though little Johnny’s Xbox is indeed 4 quid cheaper, his Dad’s house is worth £3.97 less every hour,”he wrote in his daily note.

Tick, tock to global recession?

Every month, Merrill Lynch asks a few hundred fund managers around the world what they think of the state of things. Not surprisingly, this month’s survey is probably the gloomiest yet. Everyone, says Gary Baker, the strategist charged with explaining the poll, is a macro bear suffering from hyper risk-aversion.

Of particular note for readers of Macroscope this time is the finding that 84 percent of fund managers, more than four in five, say it is likely that the global economy will experience recession over the next 12 clock.jpgmonths. It is actually possible that the figure is greater than that, given the question’s definition of recession as two quarters of negative real GDP growth. That definition is fine for countries, but for the global economy it is a bit nebulous.

At least one should hope so. According to the International Monetary Fund, global GDP should end up having grown 3.9 percent at the end of this year and drop to 3.0 percent in 2009. Blistering growth in places like China may cool, but is still likely to keep the world economy in growth. So many fund managers may have been considering a less specific definition of global recession. The IMF informally used to think of it as below 3 percent growth, for example, but is not so keen on this now.

It’s nickel and dime time for banks

Belt-tightening measuresIt’s nickel and dime time for banks as they come under pressure to cut costs in order to survive the worst financial crisis in 80 years.

According to banking sources, a U.S. bank in Canary Wharf has banned colour printing and has asked employees in the back office to chip in 25 pounds each for the office Christmas party.

A bank in Mayfair has told its employees to only hail cabs on the street instead of booking on the phone. Another bank in the City has pushed back the time employees can take taxis home to 9.30pm from 8.30pm previously.

Investing with Dante

You know things are bad on financial markets when an investment research note starts talking about Dante‘s visit to the nine circles of Hell with tormented lustful souls and gluttons living in filthy slush.

In the case of State Street Global Markets’ latest report, however, there is a more direct link than simple hyperbole about the way investors are feeling. The firm recently had a chat with former U.S. Treasury Secretary Larry Summers who defined what he saw as the five viciousrtx8t2k.jpg circles of the current financial crisis.

It goes like this:

Circle One: House prices fall in value, putting some people into negative equity and leading some to default on mortgages. Foreclosures further erode asset values.

Once Bitten

Nobody knows quite what the landscape for financial services will be after the mayhem of the last three weeks. There is much talk of the investment banking model being dead in the water and swingeing regulation aimed at firmly bolting the door of a horseless stable, butrtrow4b.jpg few are ready to hazard at the details.

One aspect on which we have seen almost universal agreement, however, is that investors have cottoned onto the immense risk of bankrolling investments they don’t quite understand. The trend for increasing pension fund investments in alternative strategies starts to look like a busted flush, and you have to question whether demand for the UK’s planned retail funds of hedge funds will sustain the new industry.

Schroders CIO Alan Brown told us this week: “People will be taking a long hard look at complex financial products.”

The curse of English football continues

After the collapse of Northern Rock, AIG and XL group – which sponsored Newcastle United, Manchester United and West Ham respectively — the curse of English football is getting stronger.
Curse of football
Today Iceland’s Landsbanki went into receivership. Its chairman Björgólfur Gudmundsson owns West Ham football club.

In November 2006, Gudmundsson, Iceland’s second richest man, led an 85 million pound buyout of the east London club in November 2006, investing another 30.5 million pounds in December 2007.

Former Thai Prime Minister Thaksin Shinawatra sold his Manchester City football club to an Abu Dhabi-based company having gone into exile in London in August on corruption charges.

No Laughing Matter

The global financial crisis is no laughing matter for many people, but it has nonetheless laugh1.jpgresurrected some dreadful puns that were popular back during the Japanese banking fiasco in the 1990s. Doing the rounds by e-mail are the following:

Sumo Bank has gone belly up; Bonsai Bank is cutting its branches; Karaoke Bank is for sale and will go for a song; Samurai Bank islaugh32.jpg soldiering on; Ninja Bank is in the black; staff at Karate Bank have got the chop; and there is something fishy up at Sushi Bank.

The recent crisis has been less fruitful. Some people started cruelly referring to Northern Rock as Northern Wreck when the British laugh22.jpglender was nationalised and analysts have lately been toying with TARP, the Troubled Asset Relief Plan. Credit Suisse and Merrill Lynch both suggested that TARP could be a TRAP while Goldman Sachs suggested it had been TARPedoed by Congress.

Going back to Quakers?

InvestorIn these troubled times, go back to basics.

Theo Zemek, AXA Investment Managers‘ global head of fixed income, says investors should adopt “Quaker investment policies” – sober and safe investment strategies that can be explained to their grandmothers.

“Anyone who utters the word ‘hedge’, after all these CDS (failures), ought to be taken out and be shot,” the 25-year markets veteran told a media briefing.

“This is the scariest market I’ve ever seen in 25 years. The world of complex instruments, credit guarantees… That world is very much an ancient history… It’s a darn tough market. Who is left standing among our counterparties?”