Monday, September 29, 2008

The end is nigh: welcome to freefall city

In around 2000, everybody went nuts and started equating clicks on websites with revenue generation. Amazon and other whizzy websites were valued at astronomical numbers. When the model unrivalled, the flow of tears was as site to behold. Everybody was a day-stock trader with guys leaving work to go and trade stocks for a living. Despite the dot-com burst, that bug has never really gone away, until now. I remember that was the first time I got into stocks, but rather than buy into the dotcom hype, I bought into M&S, one of Britain's real institutions which was then in danger of collapsing. You sensed however, that a deal would come along to save, it got a new CEO and the £1.87 shares I bought doubled within a yr when I bailed out.

This however. Is a different kettle of fish. The banking system underpins the economy. Not to get too dramatic about it. It’s the circulation system of the economy. Once you hear banks are not lending to each other, they are even less likely to lend to you. If you are a business that operates with overdraft facilities or even normal long-term loans, your days are numbered. If you are a bank that depends on that inter-bank lending, your days are numbered (hence the collapse of Lehman Brothers and other ibs; Northern Rock and other mortgage lenders). A lot of insurers invest your premiums in the stock market and even money market funds. The current stock market falls and deviation of money markets mean they are also in trouble. Furthermore, some have also been providing credit insurance (in form CDS, hence AIG's collapse).

Still, if you have some non-credit crunched cash, speculating on some of the stocks keeps things interesting. I am now back at LSE looking for some bargains. StanChart, probably the only UK-based bank with no retail banking presence in West, looks a good bet as does, Barc. For more action, RBS may tempt. Its the sort of gambling that could (has already) leaving you with egg in your face.

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