Posts Tagged ‘morgan stanley’

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The evidence is growing.

Take the IMF, for example. According to its latest report on currency reserves, developing countries rid themselves of $45 billion worth of dollars last year. Since Q2 2011 they have sold $90 billion dollars. Over the same period, the developed world has been a net buyer of dollars, and in 2012 was even a net buyer of sterling.

See: Currency Composition of Official Foreign Exchange Reserves (COFER)

Meanwhile, Bloomberg quoted Hans- Guenter Redeker, the head of global currency strategy at Morgan Stanley, who has predicted that within two and half years the euro will be back to parity with the dollar. Capital Economics cited data from the US Commodity Futures Trading Commission which showed that speculative “long futures positions against the euro, sterling and yen combined have topped 200,000 for the first time since last May and are not far off a record high.”

So what’s next? The recent movements in favour of the dollar can’t go on without interruption. Capital Economics predicts some kind of correction in the next few months, but says that looking further ahead to the end of this year and beyond, the dollar is likely to rise further against the euro.

No prizes for guessing why. Following the Cypriot debacle, there is now speculation that Slovenia will be the next Eurozone country to suffer a crisis, and the markets have become scared of the Eurozone. There is a good reason for this. But what about the yen and the good old pound? Central banks in the UK and Japan are expected to hit the QE button hard this year. But so what? Japan’s prime minister and arch dove Shinzo Abe has warned that achieving a 2 per cent inflation target in Japan may not prove possible.

There is an irony here. In the UK, the Bank of England has failed to get inflation even close to target. In Japan, the central bank may fail likewise but in the opposite direction. In Japan, the challenge is getting inflation up. Later this year, rises in commodity prices may lead to a temporary lift in Japanese inflation, but it is far from certain that this will last, and the central bank may yet prove to be impotent.

In the UK we have had £375 billion of QE so far, and while the initial burst may have kicked some life into the economy, subsequent rounds have done very little. The truth is that at a time when banks are being forced to raise capital levels, and the government is afraid to borrow the money, the markets want to lend to it at such cheap rates, QE is about as effective as a leadless pencil. In short, the Bank of England may be impotent too.

For that reason, Capital Economics reckons that while the dollar may well rise against the euro, against the yen and sterling it thinks the rises against the US currency are behind us. Against the euro, of course, it is a different story.

©2013 Investment and Business News.

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The latest data from the Nationwide, Hometrack and Halifax on UK house prices was out last week. And for the second time in three months they were unanimous. They all had month on month house prices falling: Hometrack by 0.1 per cent, Nationwide by 0.4 per cent, and the Halifax index recorded a 0.4 per cent drop in September. It has been frustrating over the last couple of years observing these housing surveys. Each month they have seemed to contradict each other. But all three reported falls in July, and in August two of the three reported falls (Nationwide had prices rising), and in September this rare agreement thing has happened again.

Perhaps more to the point, on an annual basis all three had prices falling too: Hometrack by 0.5 per cent, Nationwide by 1.4 per cent and Halifax by 1.2 per cent.

Mind you, they might have prices falling but house prices are not exactly crashing.

Meanwhile, politicians are busy trying to dream up ideas to try to get prices up. Nick Clegg wants to use money sitting in pension schemes to fund deposits, while Ed Balls has mooted the idea of using income from licensing 4G to fund a cut in stamp duty.

But, as is their wont, while on one hand the government is trying to dream up ideas to kick start the property market – such as funding for lending – is the other hand is also busy coming up with ideas to derail the market. According to analysis from Morgan Stanley, banks could be forced to find an extra £22bn in capital to fund changes to the way in which mortgages are risk weighted. The issue is complicated. Under the Basel rules, banks are required to hold a certain amount of capital. And under impending changes they will need to maintain 10 per cent capital ratios – other than mortgages, that is. Mortgages are seen as different, and carry a much lower risk rating than other asset classes. And who chooses this risk rating? Why the banks themselves, of course. It turns out that some banks have put such a low risk rating on their mortgage assets that, in fact, they can achieve leverage of near 100 to one – or one per cent capital.

It is not difficult to understand why the regulator is worried about this. This may seem like a radical concept, but some might say that it should not be down to the banks to risk assess their own assets.

So far then it all makes sense. Banks should not be allowed to risk assess their assets, and should not be allowed leverage of around 100:1 on some mortgage debt. It is just that if the regulators’ perfectly reasonable reservations were taken into account, bank mortgage lending might crash faster than you can say ‘property snakes and ladders’.

And that brings us to the baby boomers – you know those people who are due to swell the ranks of the retired to record levels. According to research from Lloyds Bank, just over half (51 per cent) of potential home movers are looking to ‘downsize’ within the next three years, compared to just a fifth (22 per cent) looking to trade up to a larger property. It is not that rare for home owners reaching retirement to downsize. The Lloyds TSB report, however, found that the reasons for downsizing have broadened in these tough economic times. Whilst 59 per cent want to move to a smaller property that is better suited to their circumstances, a third of potential downsizers would like to move to a smaller property to help reduce bills. Almost two fifths would like to free up equity in the property, and almost one in three said they want to downsize to help support retirement plans. A fifth of those considering downsizing are looking to trade down earlier than expected, with the majority citing financial concerns as the key driver.

So there you have it. The government can try to nudge us all into saving more, but as the UK enters the demographic moment of dread – the retirement of baby boomers – we are set to see a rush of people downsizing, creating an influx of supply onto the property market.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here