The “L” word
I’m signing off this blog for a few days. But with markets rather closer to the precipice than they’ve been for years, the timing of my absence doesn’t feel ideal.
The threat, of course, is from the “L” word – for leverage, you dunderhead.
It’s about that chain reaction I’ve been writing and broadcasting about for many months now, from losses for lenders at the riskier end of the US housing market, the so-called sub-prime bit, through to the re-pricing of complicated financial products that are linked to this sub-prime market (those blessed CDOs and CLOs and so on), through to the confidence of investors in other borrowers and other kinds of debt.
Right now, there’s almost a buyers’ strike for certain sorts of bond or debt, notably the borrowings of businesses being taken over by private equity.
These takeovers, like KKR’s purchase of the retailer Boots, have been financed by the big banks in the expectation that they would be able to parcel up the loans and sell them on to other investors.
But as these banks try to sell the debt on to insurers, hedge funds, pension funds or other institutional investors, they’re being given a giant raspberry.
To be clear, these takeovers still have to happen – they’ve been underwritten by the banks.
What that means is the banks now have much bigger loan-exposure to private-equity-owned companies than they had expected.
In the case of , for example, some £5bn of loans has been left sitting on the books of eight banks, including , , and .
That’s the so-called senior debt or better quality Boots stuff. The banks are succeeding in placing the more junior Boots debt, but only (and this is important) at a loss to themselves.
The point is that Boots is not an isolated example. There is billions and billions of pounds of other debt held by banks which they want to place and can’t.
What does it all mean?
Well, when a bank is forced to keep a loan on its balance sheet, that is a drain on its capital resources and means it has less ability to lend to other companies or individuals.
And when certain instances of debt are re-priced downwards, well that can have a knock-on to the valuations of all sorts of other debt products, throwing up losses elsewhere in the financial system.
In an extreme case, banks can find their ability to lend on their own account is constrained by a shortage of capital resources. And buyers of debt manufactured by banks can lose all appetite for it because of the losses accrued on the stuff they’ve already bought.
When banks can’t or won’t lend and debt-investors can’t or won’t buy debt, that’s a credit crunch, or liquidity crisis, which would have seriously harmful ramifications both for individual financial institutions and for economic activity in general.
We’re not there, yet – but the threat of it is keeping financial watchdogs awake at night.
Oh, and one other small thing.
There’s a sizeable premium in the stock-market stemming from the belief that every company is vulnerable to a private-equity takeover.
Well right now and its peers won’t get the warmest of welcomes at the big banks if they roll up and say they want to splash out tens of billions of dollars of other people’s money on buying this or that business.
So I’d predict we aren’t going to see any big new private-equity deals for a while, at least until debt markets regain their nerve and poise.
Which means that the share prices of companies thought to be vulnerable to a private-equity takeover are too high – and that in turn probably means that the stock-market as a whole may be set for some dismal days.
I'm 
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"There’s a sizeable premium in the stock-market stemming from the belief that every company is vulnerable to a private-equity takeover."
There is probably an ever bigger premium in the housing market stemming from the belief that tomorrows home buyers will be able to borrow ever more to get a foot on the ladder. Not to mention the possibility that equity withdrawal has been propping up consumption. And that people will suddenly realise how little they have saved over the last 10 years (and start seriously saving).
Recent tinkering with base rates will pale into nothing compared to the effect of a serious credit crunch.
Great blog entry. Read and immediately shorted the FTSE100, and sitting on £50 quid. Couple more of these and that'll be the license fee paid. Keep it up.
dunderhead?
If Barclays is sitting on huge amounts of senior debt from these cowboys and they are to be taken over by the Chinese as you pointed out in your last blog then should we really care?
In someways, the credit crunch is a good news. Like in Boots case, the banks now will have less money to sponser another take over, in general reduces the availability of money in the market. I guess this will directly impact the inflation towards the lower end. That means, the general public will have less to pay on their mortgages. Oh, feels good!
And also, this will reduce the number of takeovers or at least banks will think twice before underwriting another takeover(read, Sainsburys).
"Read and immediately shorted the FTSE100" I have never heard such a thing. investing like this is a GUARANTEED way to loose money.
This is a great blog post. Its ashame your going away. The markets are dropping sharply tonight and I think your views over the next few days would be interesting.
Can you not take your 'Windows Vista laptop' with you and blog from abroad ;-)??
Great blog, but we need to know more. The unwinding of private equity and forthcoming credit crunch is interesting and indirectly points to the carry trade and the low global interest rates, but look deeper. I worked in the embryonic credit derivatives markets and thought they were the solution to so many problems. Instead they have been abused completely. As any bond trader will tell you, the TRACE system sucked all the juice out of the fixed income markets, so banks simply avoided trading bonds, Credit Default Swaps became the weapon of choice and we have a situation where last year $50trillion of CDS were written... supported by ehat, maybe $7 or 8 trillion of outstanding corporate and government debt. The reason that banks have continued lending to marginal companies is because they have hedged their exposure in the derivatives market. Unfortunately, they may have hedged it with unregulated hedge funds, wait and see what happens when the Hedge funds start winding down! I may be excessively bearish but this cheap money combined with untested ferivatives and excess leverage may be the worst off all scenarios
OK, since my last posting, my short on the FTSE has just paid for two years of television licenses. Ask for a pay rise!
Good call Raphael, but how do you "short the FTSE100"? I understand the concept, but don't know how to profit from it.
Yes, a 'sizeable premium'. The financial markets are full of great anecdotes for disguising the term overbought. Every market cycle plays out in the same way, only this time we're dealing with unprecedented leverage and complicated instruments which have never before featured in a market correction so the full extent of a bear move remains to be seen. The markets disregard for risk and ignorance of bad news lately is just unsustainable and will only make corrections more prominent.
In the bad old days there was Bank A and Bank B, merrily going about their business, charging higher interest rates on the riskier loans to offset provisions against default, so that in terms of nett return there was little difference between loans to blue chips and loans to more doubtful organisations.
Then along comes a Mr Maskelyne, and he goes into Bank A, and he shows them a conjuring trick whereby they can get round the necessity to make as much provision against default, without having to reduce the gross return on the riskier loans. Wow, says Mr Short-Sighted, the Chairman of Bank A, here's a way to boost our profits and make us more competitive against Bank B. Let's go for it!
Meanwhile, over at Bank B, they are getting worried. They recognise that Bank A's behaviour is imprudent, and that it has created a ticking bomb that will require more and more effort and ingenuity to prevent from exploding. But what do they do? If they stick to prudent practice their quoted returns will be lower than Bank A's, and all the market analysts will consider Bank B inefficient, and ripe for takeover. So eventually, after much soul-searching, Bank B decides that it really has no option but to follow the same path as Bank A.
Meanwhile, Mr Maskelyne has had an even better idea ...
Can someone tell me why, in a microcosm, this isn't a pretty good description of what's happening in the financial world?
It's time for a debt crunch. It's time for some large scale capital destruction. It's time that massive house price inflation is recognised as such. It's time for a huge correction.
As long as the government protects from repossession the single house owner (second homers and buy-to-letters excepted), we'll muddle through and be better for it. The banks won't really suffer, protected from loss as they are by the fact that the money they lend is largely money they have been allowed to write into existence (c.f. fractional reserve.) It's time the government wrote money into existence the way the banks have done, and used it philanthropically in our interest, rather than taxing us to pay bond premiums on money lent by the bankers whose money-conjuring the government itself licenses!! (Inflation! you cry? What have bank-funded house prices been doing for the last 15 years? Been kept off the RPI statistics by... our government. In truth bank-lent fiat issue money is at least as corrosive as any money-printing socialist government! Some inflation is inevitable with fiat currency - I'm not arguing for gold-backed so don't do the straw man on me in your replies - but given that it is inevitable it should be printed by the government and used democratically for our benefit. No more PPI or bonds.)
Let's face up to the fact that we haven't been living in a productivity boom, but rather in a credit boom (where near-term pseudoprosperity gives way to long-term debt-slavery.)
It's time our government limited it's stimulus to the green sector and small business and let the big boys fend for themselves (or not, I care not.) The real issue of our time is how to cope with climate change, improve quality of life and live happily, and to construct our economy around our values rather than the reverse. Only the democratic fiat issue can accomplish this. It's time.
Dear Robert
Deep Black Tuesday 31st july 2007,
reminiss the 1929 great depression, as the dollar falls even further.
There is a small chance of a significant fall, that is true, but does seem the case that whenever markets fall a couple of percent it makes a large ý story and yet when they go up by a similar amount it is not mentioned. Looking over a longer term the markets have had a superb year and some profit taking is not the end of the world - remember articles about the Chinese markets collapsing a few months ago...
So THATS why the value of my nest egg shares are crashing through the floor, after the firm said not to worry they can only go up......
Thanks for the information.
Greed is not good, banks.
I don't understnad the previous comment 'shorted the FTSE100'
Looks like Ford will have dificulty getting Jaguar and Land Rover away in a hurry
The share market will be down till December and then as the profit taking, unnecessary panic over sub prime and oil comes down we will be in bull mode in 2008. The bears may have a good run for a while now but the bulls will be back. Its a good time to invest in safe large caps and tech stocks and short refiners, mid caps.
Driving from Chesterfield in Derbyshire to Greater Manchester in the last couple of weeks, the urban landscape has been showered with the confetti of "for Sale" signs. I think most of these sellers have already missed the boat.
I'm so glad I resisted the temptation to take my market vulnerable ISA up to the limit for the sake of income now. A little patience and I should get in nearer to bottom of the market to make a reasonable capital gain as well.
The signs of uncomfortable peaking were so obvious. But having got it so wrong in 1987, I learned my lesson.
Now stock markets of india, china and england are overvalued. Now many stocks like software will go down.Many stocks of america like Automobile, energy and bank will go up.
what a quick rebound today!
I am interested to know if Rapheal still making money?
I am sure my spread-betting friends are laughing all the way to their banks. Just look at today's FTSE 100 chart!
Of course, if we've got serious bear markets ahead, then the BOE isn't going to be raising rates any time soon, unless oil or earnings go up substantially. And while they are both on the up, the bank is surely going to be a bit more cautious from now on. All of which is presumably good news for British consumers/home owners.
The floods must push house prices even higher as hundreds of homes will be uninhabitable for months to come and no one will want to buy a property which is now in an area which has flooded. Therefore supply of 'safe' (not to mention insurable) places will fall even lower with the obvious consequences.
What always causes economic disasters such as these is that the money lent out goes to short term consumption and not to long term production. Why is that?
Shorting means selling shares you don't own to buy them back later (hopefully at a lower price and making a profit on the difference). If you are very brave/foolish you can do this via spreadbetting but because you can lose more money than you stake this way the best route is via warrants (they can move at lightning speed but you can't lose more than you have invested). Look at French investment bank Societe Generale's UK warrant site for more information: or the London Stock Exchanges section on warrants:
I believe Raphaels retired and is now working as a part-time consultant to George Soros!
I think many people are fooled by the name spread-'betting', by carefully make your move, chances are you are much safer making a 'bet' than longing/shorting stocks/options.
I still remember one friend told me how he buy at the bottom price of 5.5 (out of 100), then the market closed at 43.6, making him 693% profit in less than an hour.
I think your friend was trading binaries (if it was points out of 100) - which is different to spread betting.
Both are risky but useful tools for private investors. They really shine through during volatile markets (especially binaries) like the one we are experiencing now - giving the opportunity to make money whether the market is going up or down!
Lets face it, the markets are all overvalued. As interest rates have been so low, investors have been keen to invest in stocks, especially after the dotcom slump when shares were cheap. As interest rates rise, investors are going to get safer and improved income via bonds and things like that, this will lead to capital being removed from the stock markets, causing them to fall. Look at the P/E ratios of the markets, they're unsustainably high, especially when compared to the income you can now get from safer investments. The only thing driving the share market, is not the dividends that historically drives investment, but the capital apprecation, ie the shares increasing in value. As soon as this stops, the market will fall.
This is also true for the horrid buy-to-let investors in the housing market.
Paul
Robert should perhaps have noted the old adage "Sell in May and go away" -granted, such a seller would not have had the opportunity of recent profits, but would have the peace of mind of knowing that he coulod buy his old portfolio back in September at a lower price.
This is really how asset booms end - rates move up, borrowing dries up and activity slows, especially in M&As. In asset booms, M&A happen just to be macho, not to benefit the organisation, so rate rises will change the simple financial calculations on which the M&A is based - namely usually selling off some takenover assets.
It has been complicated by the huge derivatives market and hedge funds. Barclays has also taken a bath on two Bear Sterns US sub-prime mortgage hedge funds (worthless in thios case). They can scream for their lawyers, but it won't work this time.
Likewise, the collapse in the dollar means that while Wall Street may get terribly excited about reaching 14000, but in terms of the USD exchange rate of 3 years ago, Wall Street is below 10000 in UKP aand other currency terms. as shares are the present value of future profits, foreign investment in the US is not actually such a great idea.
The "shorter" above has sold a future on the FTSE 100 index, which is only cash settled. It is what Nick Leeson was doing in Singapore - betting on which way the market will move. Assuming that he has sold the index at its then value, he is hoping that the index will be below the current level when the future date arrives - usually something like 3 months ahead. Then the difference (up or down) is settled with the buyer at £10 per point per contract. Profits are only notional until the future date arrives, but it seems a decent bet.
My hedge fund mate told me last week that he expected the almighty credit crunch within two years. He defined that as the Chinese banks finally running out of cheap credit - I assume they are current so bouyed up they have some kind of reserve status.
I wonder is this is just a prelude, or whether his estimation was well out?
On the subject of UK house prices, my brother in an otherwise reasonably bouyant Lancashire cannot shift his house after four months and is now chopping the price.
Locals made very early, very low offers striking what I think is the real market value. 10-15 percent needs - and probably will - come off housing soon.
Geoff M.
Good post. What I find intriguing is that the Primum Mobile of modern Capitalism i.e fractional reserve is understood by, I guess, 1;1000 if that.
I've spoken to a VP of Chase Manhattan Bank who didn't get it! Certainly none of my friends understand and they are for the most part well educated and informed.
The majority of people believe that banks lend out other peoples deposits and make their money from the rate differentials and bank charges.
Any other blogs you would recommend ?
This is not the end of the world or a bear market... it's a correction. Nothing more. We've been here before. May this year. Equity markets are at historical highs for many reasons... private equity yes, a sustained period of real low interest rates, central banks becoming better at managing the economy and inflation, huge liquidity, record earnings to name a few.
There will be no credit crunch... markets are spooked. Rightly so. It won't last. Trust me, deals will get done. Once the volatility has calmed down. We are still in a period of historically low interest rates... and I for one think we are basically at the top of the interest rate cycle - certainly in the USA and perhaps in UK as the rises feed through into the housing market and consumer. Falling interest rates mean more liquidity and more growth.
All this talk of debt issues being pulled or not placed (like the Cadbury's deal or KKR/Boots deal) is not at all surprising seeing the volatility we have right now. When the markets calm down it will be back to business. Perhaps we have a re-pricing of risk... which is always good. That's what corrections are.
But unlike other bear markets we've had... we now have the most robust global growth ever, low inflation, the china effect, record corporate earnings, top of the interest rate cycle, and blue chips priced at some of their lowest p/e ratio's for years - blue chips do not look expensive (unless you think the earnings cycle has peaked)... ... this is no bear market. Just a correction.
Watch that short in the FTSE... because when these markets calm down, it will spike aggressively.
This is not the end of the world or a bear market... it's a correction. Nothing more. We've been here before. May this year. Equity markets are at historical highs for many reasons... private equity yes, a sustained period of real low interest rates, central banks becoming better at managing the economy and inflation, huge liquidity, record earnings to name a few.
There will be no credit crunch... markets are spooked. Rightly so. It won't last. Trust me, deals will get done. Once the volatility has calmed down. We are still in a period of historically low interest rates... and I for one think we are basically at the top of the interest rate cycle - certainly in the USA and perhaps in UK as the rises feed through into the housing market and consumer. Falling interest rates mean more liquidity and more growth.
All this talk of debt issues being pulled or not placed (like the Cadbury's deal or KKR/Boots deal) is not at all surprising seeing the volatility we have right now. When the markets calm down it will be back to business. Perhaps we have a re-pricing of risk... which is always good. That's what corrections are.
But unlike other bear markets we've had... we now have the most robust global growth ever, low inflation, the china effect, record corporate earnings, top of the interest rate cycle, and blue chips priced at some of their lowest p/e ratio's for years - blue chips do not look expensive (unless you think the earnings cycle has peaked)... ... this is no bear market. Just a correction.
Watch that short in the FTSE... because when these markets calm down, it will spike aggressively.
Are we all sheep, or should we be looking more closely at the currencies. I hear that after September the United European Countries, that make up the EURO are going to start "doing to us" what we have been "doing to them" for years. Has anybody heard about a new EURO Program coming in September. Maybe no one noticed that a Hotel Room in London on average is going for $ 500 a night U.S. and this seems to be carrying over into France, Spain, Germany, and Austria.
Did anyone notice that the volume yesterday and today was focused on the Fortune 500...that ain't John Q kicking out "Odd lots". I think all this talk about a "credit crunch" is just what they want us to think...in order to keep our minds off the real issues. I clearly remember doing currency exchanges in Japan in 1955 and getting Yen of 36,500 for $ 100.00. Se...la...Vie!!!!!
Paul Martin hit the nail on the head with a reference to capital appreciation of the stocks and comparisons to income on less risky investments.
As with houses and stocks, many people buy because the prices are going up! The 'greater fool theory'. Yet the real money is made in a buffet type strategy- buying high value assets when nobody else is and then waiting for these bull runs to accent returns on the companys performance.
Buy High/Sell Higher- Not Buy High and then sit squirming through the correction!!
I'm not a speculative investor but an uncomfortably high proportion of my capital is tied up in income funds. An increasing proportion is sheltered under an ISA each year. Problem with market movements that we are experiencing now is that I can't move the money to a safer haven to buy back when values are low. This would help me to make a capital gain but would lose me the advantage of the ISA tax shelter.
Does anyone know differently? Or are all the contributors highly knowledgeable only about the fast moving share trading and other speculative financial market instruments?
Harsh wrote that when "unnecessary panic over sub prime and oil comes down we will be in bull mode in 2008". I'm curious as to why this is unnecessary? The US housing sector, specifically the subprime area, is now significantly sensitive to US base rates given the negative house price appreciation we have this year. The Fed cannot possibly raise rates in 07 for fear of increasing defaults amongst subprime borrowers facing resets this year and, with it, losses on bonds and CDOs which effectively lever long exposures to the housing sector. With the fed's hands tied, surging Oil prices rear the ugly head of inflation which is now almost inevitable in the medium term. Risk premiums are on their way up for sure This is a CREDIT CRUNCH not a credit correction.
It may be true that as, Dunbar posted, this is just a correction but if that is the case, it will just serve o wind up the credit cycle even tighter! I maintain that the issue is the lack of transparancy, when I traded energing market bonds, you could see if the market was pricing in a default. It happened in Asia, Russia and later in Argentina. the credit dferivatives and structured credit markets have taken all that away. We know that the markets are unhealthy enough for Deutsche and JP Morgan Chase to be left with $10bn of unwanted lending on their books, but who knows how much CDO paper, Royal & Sun or Prudential have in their portfolios - you will only find out when the inept fund managers have to book a huge loss. America is concerned because experience has taught them it is rarely the high net worth individuals that take the pain but entities such as the Philidelphia teachers pension fund or Detroit firemans fund.
Wow? Ok and the good news is?
Yes the numbers and connections being tossed about do have a "waiting for the shoe to drop" feeling about them. The tuff question is "When". Face it I for one wish to safe my $$ off to a happy place. The timing is everything. My 2 cents.JB
I'm not a financial expert, so i don't understand a lot of the technical language used above. However, ominous phrases such as "dismal days" catch my interest. Am i right in thinking that this might mean "dismal days" for the standard of living of general society? If so, why is that the case - there don't appear to have been any majorly unpredictable events going on recently - ok there have been natural disasters such as the UK flooding, and wars/conflicts continue to cause troubles, but nothing unpredictable has occurred that affects world resources on a really vast scale. So why do the markets have such frights all of a sudden? It makes me worry that the system is either not regulated enough, or the people running these things are taking risks that can affect us all in a pretty bad way. I never used to take much of an interest in finance, but as I realise more and more the importance of these issues for things like housing, I'd appreciate people's opinions to understand precisely how the markets affect society in the way they do, and whether there are ways this interaction could be improved. It does seem a little ridiculous that the markets can jumping up and down when the world outside hasn't changed that much.
What if there is a gap between world's markets running into trouble and the Chinese deciding to invest their reserves? We will be impoverished (and stuck with lots of debt) whilst the Chinese will end up owning our assets.
OK heres is what is going to happen.
The market will drop and recover in various stages until the 3rd week in september when it will capitulate with a big sell off.
After that it will recover and return to its previous levels by the end of the year.
How do I know this, because I have been a trader for many years and have seen this type of action before.
Don't be too hasty in giving a reason for why this occurs. It is completely random and there is no one single reason for it.
Blaming a stock market crash on a single reason is like blaming the recent UK flooding on global warming.
Can anyone tell me what the size of the sub-prime mortgage in US is?I've been researching to find this key figure since early this year and no one seem to have the figures.A figure of US 6 trillion has been suggested,so the figure of Bernanke(Fed.Reserve) of a possible US100 billion default makes the default rate some 1.6% -a containable figure.Size of private equity debt is much smaller-maybe US 1 trillion-no defaults so far only collaterized loans not taken up so the situation in private equity is relatively benign.
The flood of easy credit for dodgy mortgages can be traced to US Treasury bond sales.
The foreign reserve of China stands at US1.2 trillion(1200 billion) most of which parked in US Treasury bonds at very low (3-5%) interest rates until this year when they bought into Blackstone's IPO,and now a small stake in Barclays-none of which amounts exceed US$20 billion.
It would only be a credit crunch leading to a global financial crisis on the scale of the 1987 crash/the 1997 Asia contagion if and when China moves a substantial part of their reserves (say 20% or $240 billion out of Treasury Bonds) into other investments.They have set up the structures for such a move but so far only less than 2% has been moved out.
I write this to give a sense of scale in the debate over this very interesting Chinese conundrum.
An excellent piece - i've been watching and expecting this for quite some time.
Maybe when it's all played out we might see the markets based loosely on some kind of reality, rather than this fantasy un-money nonsense.
There will be some pain, but maybe one day an average person will be able to afford to buy an average house again.
Does anybody know what Don Beasley is wittering on about? What is going to happen in September that we need to be warned about? Who are "they" who are trying to keep our minds off the "real issues". And does anybody really care what the Dollar-Yen exchange rate was in 1955?
29 July-- Buddha...dunderheads is too nice... this is basic economics.. liquidity crisis is the key...not UK domestic but global liquidity crisis...if Banks are holding debt that they can't sell or turnover be it collateralized or not then potential interest profit slides into the red and holding the debt bites into their operating capital [ie they would be operating in the red but that is not possible unlike subsidized airlines, etc.] Thus, Banks will look to squeeze out fees whereever they can...[decline on interest rates for deposit accounts, increase consumer account fees, increases in personal credit card rates, etc.] Plus Bank employees will be in the dock of being made potentially redundant [ie the biggest profit booster is cutting overhead ie. cutting jobs] So, if Banks do not have enough capital to underwrite equity deals due to a glut of gone-sour debt on their books that they cannot turnover quickly [and at a profit] then they cant pull off the equity deals for a profit either..no capital no underwriting.. Everyone is forgetting that Bank to Bank interloans are at fixed rates and regulated by a country Central Bank. Anyway, the crisis of liquidity of holding unprofitable debt [mostly deflated consumer mortgages] and not enough working capital means an extension to the global stock markets and a freezing and decline across the board.. Companies listed on the markets need to borrow from Banks too you know especially to finance share buy backs to boost earnings numbers just like making thousands of workers redundant and cutting that operational glut is to boost earnings when their frontline products or services are not generating profits to satisfy shareholders [ie. you will get dividends from your retirement market investments but you will be otherwise jobless]. Liquidity crisis...And all of this is the result of 3-5 years of global real estate speculation and inflated pricing on urban area housing and commerical projects of urban renewal. Whose going to buy those swank condos on the palm islands in Dubai, whose going to wish to buy a water logged moldy english flooded country home, who wants to buy a upper high rise in shake rattle and roll San Francisco or Tokyo with the weakness of dollars and yen? Even the nicely humid Central Hong Kong or upper Kowlon dwellings are all over priced and none affordable to the average worker unless you can pay 50-75 percent of the asking price down in cash today forget it. I know of four potential home buyers with 5-15 years of steady employment and a nice chunky down payment get final hour rejected on mortgage loan applications in the West usa thus rendering them employed but homeless because the real estate has declined from where it was initially and due to an increase of foreclosures.
With a bit of luck this will put the stops on the private equity industry.
It's high time this country got back tto creating and nurturing new businesses and given this takes a lot less money - and less debt - than the big PE deals cost then it strikes me it will also be better value for money.
How's that short in the FTSE looking...?? Ouch.
In reply to the poster who is worried about his ISA investments; it should be possible to move it to a different fund, within the portfolio of your provider, or to another provider. You could then put it into a fixed interest ISA (about 6% ATM). My provider charge 0.25% to do this.
You can't transfer from an equity ISA to a cash ISA and retain the tax-free priveledge now, only from April 2008. This is especially relevant if the person in question has more than one year's allowance invested.
Similarly, you cannot keep an equity ISA invested in cash for any significant length of time - this is a breach of the ISA rules.
However you are correct in that it should be possible to move funds with the existing provider, or to a new provider. Whilst there is not normally an exit cost, there is likely to be an entry cost between 0 and 6% for the new fund, particularly if you take it to a different provider.
Thank you for demystifying high finance.
There's nothing high about finance.
It's all just trading chickens for goats and keeping track of IOUs.
president truman, i believe ,despaired of ever meeting a (one armed) economist who would not inevitably add the caveat 'but on the other hand...'
the same is true today - i have yet to read an article on this issue that has not included the words 'yet' or 'but.'
Dunderhead:(1625) One so implausibly dim that their lack of mental faculty can only be explained by their having done their heads permanent damage (usually through some form of substance abuse) thus dun der head. A Numskull.
Right, there is obviously a lot of people on here that don't understand the ISA Rules. Let me clarify:
1. You cannot transfer from equity to cash ISA now, or after 2008 (From 2008 you will be able to go cash > equity)
2. For the person who wanted to change investment stance. Ask your current provider. If they will not let you change free of charge,transfer your ISA to someone like Hargreaves Lansdowne (www.h-l.com). They rebate virtually all initial charges. Also, you can sit in cash and earn interest within an equity ISA (This interest is taxed though). Whilst the poster is correct that cash should not be held 'long term' in an equity ISA, the Govt do not specify a time limit. My 'Equity' ISA is currently sitting in cash in HL, and has been for some months.
I for one bailed a few weeks back and am now looking with glee at the falling markets. All my cash is now in an offset account, which assuming no more rate rises is looking good as a medium term investment.
I for one bailed a few weeks back and am now looking with glee at the falling markets. All my cash is now in an offset account, which assuming no more rate rises is looking good as a medium term investment.