Mar 25

Spring Cleaning

Investment banks report some amazing figures with each one seemingly trying to out do the other, unfortunately however its with the size of their write offs!

More CEO’s of International Banks must have lost their jobs in the last three months than Premiership Football Managers, although they probably received even better pay offs than the £6 m received by Sam Allardice at Newcastle United.
So in come the new boys, actually it’s more like musical chairs with these corporate boys. The number three at Goldman becomes number one at Merrills etc etc. All went to the same universities, did the same MBA courses, live in the same regions, holiday in the same areas, wow what a club!

So in they come these new champions and within days, at the latest weeks, they decide that they need to write off billions. This is actually a good sign for us mere mortals who could never even afford the lunch of one of these, Masters of the Univers, (remember Barbarians at the Gate?). I say good because it may just work as follows.

When things go sour it is best to just take it on the chin, have a bad few months and then bounce. The banks internationally have been awash with cash and chasing larger and larger profits for the last few years. Then, as they always do, they get greedy and bet on red (subprime) instead of black (solid debt). So now they have a chance to clean house.

A new boss is appointed, all the mistakes, and far more, are written off in one go. Note that many banks wrote off 30 – 50% more bad debts across their operation than the markets were expecting.  Then follows a period of contrition and acting hurt and vulnerable while busy raising capital, Merrill Lynch have raised billions in the last few weeks.

Therefore I ask are these guys not ready and well placed to take advantage of a market looking cheaper than it has in years? Is this the ultimate spring cleaning exercise?Â

The economy may have sectors in recession but is the entire US economy going to go into recession? I really, just like 75% of others far smarter than me, don’t know and the other 25% are so varied in opinion it’s rather like an Italian Parliament, chaotic and changeable at the very best of times!

Personally I may be wrong and boy it wouldn’t be the 101st time, but if the massive controllers of the worlds investment community have cleaned house and positioned themselves well, then it gives me some comfort. Is it time to invest just because the streets are running with blood, I am not sure, but I would say one thing. To exit this market now leaves you open to the biggest sin of all and that is sitting on the bench watching the game potentially running away from you.

Me, well I have my lottery ticket so at least I am in the game!

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