Indications of economic troubles

[NoelWatson]

Spurred on by reading this article

http://www.ft.com/cms/s/0/1c1d5a9e-bb29-11dd-bc6c-...

I was wondering what events individuals on here thought had a strong chance of happening yet the general public were largely oblivious. The housing market has been discussed, and we also discussed the potential problems with the Icelandic banks back in April when they were still being pushed by certain websites. I'm looking for other examples, and in particular the warning signs.

Did anyone see Northern Rock going under, and what were the warning signs (ignoring the obvious 125% LTV) - for example, was it common knowledge they were borrowing heavily short term to fund long term debt?

[Zod]

Iceland was the most obvious to me. When Johanesson was charged with false accounting in 2005 (he was convicted), it was clear to me that Iceland was a house of cards. In addition, he has long hair. Long-haired CEOs are in my list of signs of a dodgy company along with the other usual indicators like the lobby fountain and the corporate jet.

The Candy brothers by the way have been making a big splash about their corporate jet buying activity and their other ostentatious spending. Considering that, despite the ridiculous figures they pretend they can get for their developments, their revenues are not particularly large, most of their projects are being scaled back and their JV partners are pulling out or pushing them out of developments, I predict that they will go down.

[ShadowNinja]

John Paulson saw it coming. The bd.

http://www.moneyweek.com/news-and-charts/the-wall-...

[blindswelledrat]

Zod said:

The Candy brothers by the way have been making a big splash about their corporate jet buying activity and their other ostentatious spending. Considering that, despite the ridiculous figures they pretend they can get for their developments, their revenues are not particularly large, most of their projects are being scaled back and their JV partners are pulling out or pushing them out of developments, I predict that they will go down.

I would be delighted if that happened.

[NoelWatson]

ShadowNinja said:

John Paulson saw it coming. The bd.

http://www.moneyweek.com/news-and-charts/the-wall-...

He did indeed. I guess the point of my post was to find out ways of making money by betting against the common consensus. It was hard to short the housing market in the UK (as a punter), as by the time the market started to fall, massive drops were already priced into future values on various exchanges. With regard to the article you posted,



certain tranches were doing very well even in July '07, even when the YOY house prices had been falling since the end of 2005. In hindsight it seems like a no-brainer, but it would require someone with knowledge of how these indices were constructed, and what was contained in the underlying. Furthermore, it wasn't possible for a punter to gain exposure to the ABX (as far as I am aware)

[NoelWatson]

Zod said:

Iceland was the most obvious to me. When Johanesson was charged with false accounting in 2005 (he was convicted), it was clear to me that Iceland was a house of cards. In addition, he has long hair. Long-haired CEOs are in my list of signs of a dodgy company along with the other usual indicators like the lobby fountain and the corporate jet.

The Candy brothers by the way have been making a big splash about their corporate jet buying activity and their other ostentatious spending. Considering that, despite the ridiculous figures they pretend they can get for their developments, their revenues are not particularly large, most of their projects are being scaled back and their JV partners are pulling out or pushing them out of developments, I predict that they will go down.

If you were a betting man, how would you take advantage of your beliefs, as they are an unlisted company?

[Andy Zarse]

Noel, everything is in a book entitled "Boom/Bust, house prices, banking and the depression of 2010" by economic journalist Fred Harrison. I'm reading it at the moment and it's all in there; the house/land price bubble, CDO's, the Celtic bubble, recession, taxation, inflation, Brown, Greenspan, Iceland, the end of boom/bust, the whole shooting match. He states not only what was going to happen, which was fairly obvious I guess, but it's the way he got right the "why" that is so clever IMO. It's pretty heavy going at times, it's as if it was written last week but was in fact penned in 2004/5.

Email me if you like and I'll send it to you when I've finished it, I think you'll enjoy it.

Edited by Andy Zarse on Wednesday 26th November 10:56

[sleep envy]

Zod said:

their JV partners are pulling out or pushing them out of developments

are Chrith and Nick being pushed out of 1HP?

[Zod]

NoelWatson said:

Zod said:

Iceland was the most obvious to me. When Johanesson was charged with false accounting in 2005 (he was convicted), it was clear to me that Iceland was a house of cards. In addition, he has long hair. Long-haired CEOs are in my list of signs of a dodgy company along with the other usual indicators like the lobby fountain and the corporate jet.

The Candy brothers by the way have been making a big splash about their corporate jet buying activity and their other ostentatious spending. Considering that, despite the ridiculous figures they pretend they can get for their developments, their revenues are not particularly large, most of their projects are being scaled back and their JV partners are pulling out or pushing them out of developments, I predict that they will go down.

If you were a betting man, how would you take advantage of your beliefs, as they are an unlisted company?

Good question. If you had the cash, I suppose you might try buying them out of their commitments at a massive discount to their entry cost for cash.
If not, I'm sure you could get a specialist bookie to give you odds, but not long ones.

[o.versteer]

Zod said:

Iceland was the most obvious to me. When Johanesson was charged with false accounting in 2005 (he was convicted), it was clear to me that Iceland was a house of cards. In addition, he has long hair.

A dead giveaway of corporate dodginess and a market out of control. Spot on that man.

[walm]

NoelWatson said:

Did anyone see Northern Rock going under, and what were the warning signs (ignoring the obvious 125% LTV) - for example, was it common knowledge they were borrowing heavily short term to fund long term debt?

Almost all the mortgage lenders do that, but to varying extents.
The source of NRK's funding was public knowledge and they had the highest proportion of wholesale funding (72% at end June 07) compared to the others. Next worst were Alliance & Leicester at 54%.

I like the idea of this thread, if I understand correctly what you are looking for. i.e. early warning signs for companies/industries in trouble that haven't already collapsed...?

[Andy Zarse]

o.versteer said:

Zod said:

Iceland was the most obvious to me. When Johanesson was charged with false accounting in 2005 (he was convicted), it was clear to me that Iceland was a house of cards. In addition, he has long hair.

A dead giveaway of corporate dodginess and a market out of control. Spot on that man.

Edited by Andy Zarse on Wednesday 26th November 11:06

[Zod]

Andy Zarse said:

o.versteer said:

Zod said:

Iceland was the most obvious to me. When Johanesson was charged with false accounting in 2005 (he was convicted), it was clear to me that Iceland was a house of cards. In addition, he has long hair.

A dead giveaway of corporate dodginess and a market out of control. Spot on that man.

He has had his troubles.

[Horse_Apple]

NoelWatson said:

Spurred on by reading this article

http://www.ft.com/cms/s/0/1c1d5a9e-bb29-11dd-bc6c-...

I was wondering what events individuals on here thought had a strong chance of happening yet the general public were largely oblivious. The housing market has been discussed, and we also discussed the potential problems with the Icelandic banks back in April when they were still being pushed by certain websites. I'm looking for other examples, and in particular the warning signs.

Did anyone see Northern Rock going under, and what were the warning signs (ignoring the obvious 125% LTV) - for example, was it common knowledge they were borrowing heavily short term to fund long term debt?

In terms of quoted companies I would be looking at any of the highstreet chains which expanded massively in the last 5 years. All of this expansion is fuelled by very cheap debt that almost certainly won't be maintained. Much needed rental reductions will be too slow to materialise to save many of them.

So in essence, any business which is based solely on highstreet spending which utilises leased sites and has high borrowings.

Commercial rents have to come down and will do so but it won't happen quickly enough. Imagine a business with 100 landlords to negotiate with but just one bank that can change terms in an instant.

My view is that once this all blows over the average town highstreet will have gone back to how it allways was with the bulk of sites being occupied by local stand alone enterprises.

The economies of scale of chain stores in many cases are not sufficient to combat the rapid reversal of very cheap financing.

Edited by Horse_Apple on Wednesday 26th November 11:15

[NoelWatson]

walm said:

I like the idea of this thread, if I understand correctly what you are looking for. i.e. early warning signs for companies/industries in trouble that haven't already collapsed...?

Yes. Hundreds of minds are better than one.

[NoelWatson]

Andy Zarse said:

Noel, everything is in a book entitled "Boom/Bust, house prices, banking and the depression of 2010" by economic journalist Fred Harrison. I'm reading it at the moment and it's all in there; the house/land price bubble, CDO's, the Celtic bubble, recession, taxation, inflation, Brown, Greenspan, Iceland, the end of boom/bust, the whole shooting match. He states not only what was going to happen, which was fairly obvious I guess, but it's the way he got right the "why" that is so clever IMO. It's pretty heavy going at times, it's as if it was written last week but was in fact penned in 2004/5.

Email me if you like and I'll send it to you when I've finished it, I think you'll enjoy it.

Edited by Andy Zarse on Wednesday 26th November 10:56

Thanks for offer. I will get my other half to buy it for me for Christmas (sad I know!)

[ettore]

Andy Zarse said:

o.versteer said:

Zod said:

Iceland was the most obvious to me. When Johanesson was charged with false accounting in 2005 (he was convicted), it was clear to me that Iceland was a house of cards. In addition, he has long hair.

A dead giveaway of corporate dodginess and a market out of control. Spot on that man.

Edited by Andy Zarse on Wednesday 26th November 11:06

My chairman, who has been unspeakably accurate about all of the current troubles, highlighted the Virgin Group as a potential house of cards some time ago. Virgin Media has recently succeeded in re-capitalising (-ish) itself thus keeping the wolves away for a couple of years at least but perhaps there could be further trouble at t'mill.

[o.versteer]

Zod said:

Andy Zarse said:

o.versteer said:

Zod said:

Iceland was the most obvious to me. When Johanesson was charged with false accounting in 2005 (he was convicted), it was clear to me that Iceland was a house of cards. In addition, he has long hair.

A dead giveaway of corporate dodginess and a market out of control. Spot on that man.

He has had his troubles.

And his mop is no match for a proper Iceland mullet, let's be honest....

[2something]

NoelWatson said:

It was hard to short the housing market in the UK (as a punter), as by the time the market started to fall, massive drops were already priced into future values on various exchanges. With regard to the article you posted,

It was hard to short because it was a strong bull market. You can't wait until it's obvious that the bull market is over before going short the back end futures. Your point is valid for providers like IG that only have the next 2 futures though, but someone like spreadfair had futures out to 2010 that any punter could have sold.

[DangerousMike]

people are starting to have longer hair.