Anyway, back to the good news. The Students Loan Company have decided, so very charitably, that due to the falling interest rates that they should make immediate reductions to the paid interest rates on student loans in the UK. The rate is normally linked for the year to RPI (retail price index) but due to the aggressive (and necessary) monetary policy employed over the last 3 months, they have enacted a clause which stipulates that the rate can be no higher than 1% above base rate. So the rate has come down from 3.8% to 2.5% on student loans with effect from 9th Jan so we should see some benefit sneaking in soon (check the official page here if you’re in doubt). The other good thing is that if inflation continues to slide back from the 5% high and the economy continues to look pretty sick, there’s a good bet that Base Rate will be due another cut or two this year. Using Student Loan Company’s logic that the paid rate can’t be more than 1% above Base Rate, we should see paid interest rates on student loans fall further. Stranger things have happened than Base Rate sliding down to 0.5% by the end of 2009 thus meaning a paid interest rate of 1.5% on student loans, a whopping 2.3% less than the originally set level.

On that note, who’s up for another Jaeger Bomb?

The hysteric and ‘expert’ laden media will have ensured that you know everything (that they know, which isn’t a great deal) about the unprecedented failures in the financial sector but I just wanted to put together a definitive list that would make Schumpeter get a bit of a rod on…here are the fallen, the bailed-out, the nationalised, the engulfed and the teetering, please drop me a line if I’ve missed any out…

• US Banks -Bear Sterns (bought by rival), Merril Lynch (bought by rival), Lehman Brothers (part bought/part administration), ING (government bail-out), Freddie Mac & Fannie Mae (government bail-out), Washington Mutual (bought by rival), Walcovia (bought by rival).
• UK Banks – Northern Rock (nationalised), HBOS (sale pending), Alliance & Leicester (sale pending), Bradford & Bingley (part nationalised/part sold), Derbyshire Building Society and Cheshire Building Society (sold to rival)
• UK Corporates – Joy, Rosebys, Hardy Aimes, XL Travel, Motor World and WorldSki (all administration) and MFI (MBO executed)
• Belgian Banks – Dexia, Fortis (both still being finalised, appear to be part govt bailout and part sale)
• German Banks – Dresdner (sale to rival) , SachsenLB, Hypo Real Estate and West LB (all govt or investor bail-out)
• Icelandic Banks – Glitnir (nationalised)
• Icelandic Corporates -Stodir (administration)
• Italian Corporates – Alitalia – bail out being discussed

On the related issue of economic pundits in the media, Robert Peston i.e the Horseman of Financial Apocalypse is popping up everywhere thesedays. I had the gross misfortune of reading a groveling, arse-probing of an article by one of his former underlings in the Independent this Sunday. The author only just stopped short of calling Peston the second coming, what an overt textual favour. My thing with Peston is that I just can’t decide if his on-edge demeanour is either a) him about to go Michael Douglas “Falling Down” or b) his cum face. Considering the pure delight he seems to get from the financial plight, I’m definitely going for a perpetual version of the latter. Here’s the cheeky chappy himself, see what I mean?:

Note, it’s actually Rollercoaster Tycoon on the Atari. But seriously, Theme Park was epic

Well, despite the sterling work of the people at the Bowl Court squat, vocal support from some lass called Tracey Emin and the ‘Save the Light’ campaign it appears that Hackney Council have given their support to the uber-scheme planned to “regenerate” the Bishopsgate Yard area of Shoreditch. Full details of what’s planned can be found here. Having read the document and taking into consideration the other developments that are planned (300 odd flats on Bethnal Green Road, Norton Folgate mixed-development scheme and Hearn Street/Plough Yard development), it’s clear that we live in unique times currently in Shoreditch. The whole aesthetic and vibe of the area will be completely replaced with something more akin to the nearer city fringe around Broadgate, Devonshire Square and the like.

Check out this image of the proposed sky line, quite scary me thinks! Can’t help but think going into a recession building loads of speculative office and residential units isn’t the brightest idea man has ever had. I wouldn’t be surprised if this ends up getting mothballed for a couple of years (say completion 2012) although will they try and throw it together in time for the Olympics? If so, expect a bodged effort.

See full image here at BD Online

Well, if you cast your mind back to November last year, a certain site, told you that the shit would hit the fan, so to speak, in this article.

As I clearly have a Nostrodamus-esque ability to predict the future, I continue to predict that Turbowolf will be massive, I love all their tracks, enjoy Bite Me Like a Dog here:

[See post to listen to audio]

Talking of Winners, Music and Hating to Say I Told You So…here’s a blast from the past via The Vines…

Social networking is not such a new thing; those of us who have been using the internet since before myspace might remember a site called faceparty; mainly populated by the grimy denizens of the rave and techno world, with a strong line in random hook-ups, faceparty is the Dolphin at 4am on monday morning compared to facebook’s Tea bar on a thursday night. And here’s the thing; faceparty is winning really hard as a social network still. It started well before 2000 and still pulls in very stable and strong traffic.

So what can facebook add to stop failing it, or at least keep getting traffic and selling ridiculously cheap advertising?

PROTIP: The answer is not the ‘What Kind of Lover Are You?’ Application

I predict that the next big step in social network is going to be a bit of ghettoization. For my real friends, I can still suffice with that most old school of social networks; e-mail. We want to be able to interrupt each other freely, and, to be honest, it’s really easy to opt out of a big CC email thread, so this works for me. In terms of workplace procrastination, I’ll lay good money on more time still being wasted in email banter between friends than on all the social networking sites combined. And then the ghetto social networks; I’ll be happy to shuffle many of my pseudo and low-level friends into where they are useful. Interesting observations on life? Get onto my twitter. Useful networking contact? Onto linkedin. And so on. And, in fact, putting the people who I do sports with into sports social network, my gig buddies in last.fm and yada yada…Each of these social networks then has the tools I need to do what I want with these people, and I can use facebook just as a bit of an aggregration (lets face it, it only really wins for photo tagging, yeah?)

I feel like screaming at the screen in a futile attempt to stop the inevitable. In said horror film it is the gruesome death of the cannon fodder cheerleader, in the real World right now it’s the even more gruesome looking recession that we’re running straight into.

image courtesy of nymag.com

As an economist, I’m quite a sadist when it comes to the economic cycle. I hate stability, it’s all about volatility – that’s when you find out who knows what(and who was just lucky and could talk a good game) and what variables influences what and to what extent. For me, trying to flatten the boom-bust cycle is the Sisyphusian challenge of politicians.

“If I can just keep this economy rolling, they may not notice that I’m really quite a stalinistic dullard”

What I find so beautiful about the free-market is the fact that it’s a moving feast that can change quicker than you can draw a supply and demand diagram. The other thing that is so intriguing about the free-market is how it can so quickly be gripped by fear (and the dynamic between the two points). To quote loosely Michael Lewis’ Liar’s Poker “if you don’t know who the loser is in a transaction, then it’s probably you”. It is this very self doubt that has had financial markets crippled for the last 6 months – as Bank’s parcelled up toxic waste American Real Estate into complex AAA-rated products they lost a certain amount of trust for each other – whilst they have all been in the game of securisation, it was now a case of who had ended up with all the shit in this multi-billion game of pass the parcel.

Fear has a crippling effect on any market and what started in the sub-prime property World spread to securitisation which has now pretty much closed down the IPO and secondary loan markets – trying to syndicate anything other than cast-iron corporates is like trying to sell Christmas trees on Boxing Day.

Now the investors have it. They are pulling out of investment funds in their droves (crippling property funds and hedge funds in equal measure) and staying up at night worrying about the bloodbath that is the stock markets, not to mention the likely value slide the roof they’re currently staring at is going to take. My indicator for how frenzied the markets are is look at Gold and Bond prices – they are the relative safe-havens that people run to when they are gripped by fear.

There’s more…in the UK, retailers are announcing some horrendous figures for Q4, a quarter which has a disproportionate impact on their yearly performance – which shows that the consumer is starting to feel the burn, and rightly so too! The consumer has had it easy for the last couple of years – spiraling house prices and cheap and easy credit. Now the consumer is showing some signs of floundering under the effect of increased interest rates (their impact is slightly delayed) and the drying up of easy and cheap credit. It’s time for downgrading and battening down the hatches, but my money is on the UK consumer being stubborn as a mule and thus leading to a record level of bankruptcies and house repossessions in 2008.

Then there’s inflation…I still think that there’s something wrong with the way we measure inflation, I just don’t think that it really captures what’s going on (maybe it’s just London that’s seems to be facing weekly price hikes on certain goods). I’m pretty sure the Tesco near me is printing new price tags every weekend. Anyone who’s an EDF customer will have just got a weasel of a letter saying that they are putting prices up. Final thing on inflation, I’ve been watching property rents via Gumtree over the last 9 months and they have gone insane. This is because buy-to-let landlords are passing on their increased costs of debt to the tenants, tenants will thus have less disposable income and so the downward cycle goes. Due to the weakening corporate, retail and financial services industry performance, increased wage demands are going to fall on deaf ears and redundancies are likely to become de rigeur. The impacts on charity in a downturn have already been touched upon in an article on this website by Chairman Meow.

I’ve just heard a little bit of news from out in the field from Kingmug (he’s catching some waves down in Devon) and he says that people are going fucking crazy down there because they are so scared about property prices. He says it’s almost like a scene out of an apocalyptic 80s movie – albeit I find it hard to believe that this panic has spread to the surfing community, it’s not really in-keeping with the vibe.

My advice, save the pennies as it’s going to be a bumpy old ride. You could do what I’m gonna do and just move to China. That’s the beauty of globalisation, if one market gets fucked up, you can just move to another.

Image courtesy of CrappyGraphs.com

One of the big stories of the week has been the decision by the US Federal Reserve, The Bank of England, The European Central Bank, The Central Bank of Switzerland and the The Central Bank of Canada to inject around £110 billion into the market to ease concerns.

Why are they doing this? The simple fact is that borrowing in the inter-bank market has become too expensive and is stalling the cogs of the financial markets. The impacts of high libor rates can be seen in various areas; the doubts over the operating models of Northern Rock, Bradford & Bingley and Alliance & Leicester (because their operating model is reliant on borrowing short-term money on the inter-bank market); the number of large bond issues, syndicated loans and IPOs that have been pulled (these are all ways in which companies raise large sums of money – i.e. there hasn’t been the liquidity or inclination to execute some of these deals) and the general decline in the value of Bank stocks (although this is also in no small measure due to worries over bad debts/asset values and worsening economic conditions).

Don’t get me wrong, liquidity needs to be pumped into the market to allow the system to work, it’s not hurting the man on the street as some misguided commentaries have stated, if anything, making liquidity available for bank’s to lend to top corporates in all walks of life actually assists all those shareholders of said corporates, their employees and ultimately those that enjoy their products/services.

The more controversial point I want to make is around liquidity and in fact the global shift in liquidity. Let’s think what’s happened over the last 5 years…China and emerging markets have performed very strongly, attracting liquidity into their central coffers as the developed world flocks to purchase their wares. Commodity-rich countries especially those swimming in oil have benefited from the heady heights of their respective commodity prices.

So emerging markets and commodity-rich countries are suddenly bulging with liquidity, and you know what? They want a return. They want a yield better than US treasury bonds and have become more adventurous in achieving this return. See examples such as The Chinese Development Bank buying a share in Barclays and the aborted bid by the Qatar Investment Fund , Delta Two for Sainsburys.

The global balance of liquidity has tipped and now I can’t help but think that putting the liquidity into the market for the developed economies banks is protecting both the banks (as the distributors of liquidity) and the corporates (as a demander of liquidity). Ultimately, if liquidity continued to freeze up (frankly caused by its own over-exuberance) then more large debt placements would go on hold, banks would continue to feel the capital squeeze (thus not be able to do as much business) and the FTSE as a whole would be materially and negatively impacted (although some cash-generative corporate players would outperform the rest because they are ‘teflon’ in liquidity problems).

So…shares going down, not necessarily because of fundamentals but just because the market mechanism has fucked up and prevented the flow of cash. Some shares will go down beyond their fair value and suddenly holding these shares brings very reasonable returns indeed. In fact, if I’m looking at an underpriced Bank that’s turning £5bn in profit each year and I’m a petro-dollar rich state-backed investment fund…fuck it, I’ll have the lot…