Mock Turtle

Oh yeah, this is sure to restore confidence in British financial stocks (emphasis added):

Britain bans short-selling of financial stocks

By Steve Goldstein
Last update: 1:52 p.m. EDT Sept. 18, 2008
LONDON (MarketWatch) — Britain’s Financial Services Authority on Thursday banned short-selling of financial stocks and prohibited any increase in new bearish positions in the sector. Also, disclosure will be required on all positions of more than 0.25% of a stock. The regulator said it may extend the bank to other sectors. The ban is due to remain in force until Jan. 16, but it will be reviewed in 30 days. “While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets. As a result, we have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector,” said Hector Sants, chief executive of the FSA.

Especially with news like this:

UK borrowing soars to £28.2bn

UK public finances deteriorated further in August as the public sector net borrowing requirement for the five months since April rose to £28.2bn, roughly 70 per cent higher than a year earlier.

Sharp rise in UK jobless claimants

The number of people claiming unemployment benefit rose by more than 32,500 to more than 900,000 last month, the seventh monthly rise and the biggest increase for almost 16 years.

Here’s chart of the FTSE 100 index over the last year:

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“My own belief is if we were going to have some kind of big crash or recession, we probably would have had it by now.”

You have to wonder just why Stephen Harper would feel compelled to offer these thoughts today.

I mean, I understand this comment, also from today: “The Canadian economy’s fundamentals are solid.” That’s just the same kind of bland, bald-faced lie as “the Canadian food safety regime is admired by the world,” or “the Green Shift will raise your taxes.” But why put yourself on the record with this kind of statement, in a quickly-changing environment of unknown risks and externalities?

Let’s review Canadian economic indicators. Job numbers are softening and layoffs continue to be announced daily. Housing prices are going down. The trade surplus has tumbled. Commodity prices, as measured by the CRB index, are down 25% since July 1st, the fastest drop of that magnitude in 40 years. Labour productivity, always lagging the U.S., has had the longest streak of quarterly declines since 1980. Optimistic outlooks for Canadian GDP growth in 2008 sees it topping out at 0.8% — the second-slowest growth in the G8.

Is Stephen Harper just five steps ahead of us all? Does he have laser-sharp vision, seeing in sharp relief all the intricacies of the worldwide economy the rest of us miss? All hail the Oracle of Ottawa.

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Jack Layton’s campaign kick-off highlighted the well-known environmental issues with the oil sands. And a new report from National Bank Financial highlights the other sustainability problem facing Fort McMurray:

the break-even oil price required by new mining projects in the oil sands has jumped to $85 a barrel, an increase of $20 or 31% in barely more than a year.

The price of oil today? $106.34. The trend: down. The implications for the Canadian economy, entirely dependent on the fumes of commodities prices past for its meagre 2008 GDP performance: huge.

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I think we know how this story goes. After months of slower sales and record-high inventory, Toronto’s real estate prices begin their descent:

In the City of Toronto the average price declined one per cent to $377,990 from last August’s $381,681.

Existing home sales in the city were down 25% year-over-year, which qualifies as “stable” according to the Toronto Real Estate Board. Any retailer that reported a 25% drop in same-store sales would be considered to be “tanking”. Inventory, meanwhile, has increased by 31%.

I wouldn’t be surprised if the psychological effect of this slight drop accelerates further reductions in prices.

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From the GMO quarterly newsletter, a dissenting voice on the Chinese miracle:

No sooner do we finish wallowing in the idea of Soviet incompetence than we start to believe that Chinese central planners can wonderfully manage a complicated economy, growing unprecedentedly fast and transforming overnight from a rural society to a capital-intensive wonder using half of some of the world’s resources. Economic logic and history suggest that their governmental interferences will be sub-optimal, and that China’s current level of investment will turn out to be dangerously high, encouraging waste. They continue to build basic capacity on automatic pilot even as they encounter dangerous times for their export-led economy, since we are all facing the rising probability of a global slowdown in economic growth and trade. China also has to deal with rising energy costs in their particularly energy inefficient economy. Surely they will stumble. And if we are all unlucky, they will stumble right into the global credit crisis.

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Often Canadians like making it onto lists — best quality of life, most expensive cities, kindest and gentlest societies, that kind of thing.

But then there are lists Canada is on but would prefer to be left off, like the Al-Qaeda target lists, or this one — super-bear economist Nouriel Roubini’s list of countries likely to experience a hard landing. That’s right, we made the big time, along with the U.S., the U.K., helium-housed Ireland and Spain, and, um, the Baltics. Poor old Japan, which has only recently recovered from its “lost decade”, is also part of the exclusive club.

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I’ve just finished a very funny book on how Wall Street works, published in 1940 and written by someone who worked in the markets through the crash of 1929. Where Are The Customers’ Yachts was reissued as a paperback a few years ago, and almost every page is relevant to today — perhaps even more relevant satire than it would have been in the calm pre-credit crunch world.

Compare this recent Onion headline: Recession-Plagued Nation Demands New Bubble to Invest In to this passage from Yachts:

In our moments of sober thought we all realize that booms are bad things, not good. But nearly all of us have a hankering for another one. “Another little orgy wouldn’t do us any harm,” is the feeling that persists both downtown and up. This is quite human, because in the last boom we acted so silly. If we are old enough, we probably acted silly in the last three. We either got in too late, or out too late, or both. But now that we are experienced, just give us one more shot at a good reliable runaway boom!

Or there’s the chapter “The Short Seller — He of the Black Heart.” As the author notes, indignation about the short seller “only exists during and after panics — during prosperous times he receives as much attention as do people who practice barratry.” From a posting about new Merrill Lynch writedowns on financial blog The Big Picture today, a sarcastic comment referring to the currently pervasive “it’s all the shorts’ fault” meme:

There is no doubt as to who foisted these losses on Merrill: Rumor-mongers, Short-sellers, and al-Qaeda. Management obviously had nothing to do with this. Hence, the SEC should be spending most of its budget, manpower, and time investigating those issues.

Or this headline from today’s CBS Marketwatch: The blame game: It’s fashionable, but probably wrong, to blame the short sellers

Yachts author Fred Schwed Jr. (could that possibly be his real name?) himself foreshadowed the future in his pages on the folly of chartists, aka technical analysts:

When the student peers, however closely, at a graph of Dow-Jones averages, for example, all he sees for certain is a history of past performances clearly and conveniently depicted. That one can, by examining the line already drawn, make a useful guess at the line not yet drawn, must be predicated on the hypothesis that “history repeats itself.” History does in a vague way repeat itself, but it does it slowly and ponderously, and with an infinite number of surprising variations.

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Last summer I drew your attention to the CBOE Volatility (VIX) index, which at the time was, like the Baltic Dry Index, a relatively low-profile stock market metric that had started to look very odd. (My own familiarity with the VIX index is the legacy of two years of early morning meetings with a a cranky trader/analyst who I long assumed lived in another part of the country because he always dialled in to the meeting rather than walking the one flight of stairs down to the boardroom.)

These days, everyone’s a VIX voyeur. And yesterday, it finally shot up over 30, confirming (for anyone with remaining doubts) that things are pretty choppy out there. This is a big deal, because apparently some were convinced that if the VIX wasn’t shooting up everything was really OK.

There is a volatility index for the Canadian markets as well. As far as I can tell, the Montreal implied volatility index has only been around for a few years and is at an all-time high — not surprising, given today’s exciting buffeting of the TSX.

Ride’em, cowboy! (Isn’t the Stampede on?)

In the US, volatility is most visible as it spills out onto the streets. So far here it’s just sparked the revival of the same old story:

CIBC woes may spark mergers, analyst says

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Come October, the Toronto Real Estate Board will have a new bogeyman to blame for sliding sales: the federal government. The government is reining in mortgages, at least the insured ones it guarantees, scrapping the 40-year amortization period in favour of a maximum of 35 years, requiring a minimum credit score and downpayment and imposing a debt-to-income ratio of 45% to borrowers.

It’s estimated that 40-year mortgages now account for 45% of new mortgage originations. The 40-year product, introduced at the end of 2006, certainly played some part in keeping housing prices on their upward march until the last few months — so its demise should precipitate their slide.

The Finance department release states that “Today’s announcement marks a responsible and measured approach by the government to ensure Canada’s housing market remains strong, and to reduce the risk of a U.S.-style housing bubble developing in Canada.” As with most announcements from Jim Flaherty’s Finance, the timing of the announcement is comically off. Sales across the country are down by double digits and inventories are up — whatever bubble there was is deflating all on its own already. Better late than never.

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Could the communications team at the Toronto Real Estate Board be the worst in the city? Granted, TREB is the lobby group representing realtors, know most for erratic capitalization and repeated punctuation marks. And, OK, it’s hard to put out press release after press release about a deflating market after years of hyperbolic boasting about strength, robustness, and all-time records. But all that aside, the strategy behind communicating the June sales figures is bizarre.

The teaser message on the TREB website points out that while sales this June were down 18% from last June, last June was an all-time record. Fair enough. Then, in an effort to make the dramatic drop in sales even less shocking, TREB helpfully points out that June 2008 was not the first — second — third — or fourth best June on record, but the fifth. Is that really a point to recommend it?

The release itself is confusing because it tries to explain that the 2008 to 2007 drop in sales isn’t really so bad because the increase in 2006 to 2007 was so large. That would make some sense if 2008 was the, say, second best June on record, but the fact that it’s the fifth suggests there’s more backtracking than simply an easing off last year’s peak.

The release leads with the inevitable increase in prices, which has continued despite the double-digit decrease in sales (oddly, not mentioned until the sixth paragraph).

Sales of resale housing in the GTA were down 18% in June 2008 over June 2007. But, as the release points out, there was a 20% increase in sales between 2006 and 2007. So 2008 sales were down only 1% compared to June 2006. Um… great?

And here, more confusing comparisons without any conclusion to comfort you about the healthy, balanced GTA housing market:

In the City of Toronto, sales for the first two quarters declined 15 per cent to 17,370 from 20,574 in 2007 and down 8 per cent from 18,917 in 2006. In the 905 Region sales declined 12 per cent to 26,315 from 30,074 in 2007 and down 2 per cent from 26,880 in 2006. However, when you compare the first two quarters of 2007 with the same period in 2006, sales increased by 9 per
cent in the City of Toronto and by 12 per cent in the 905 Region.

Does the “however” really fit there? Do the 2007/2006 comparisons somehow negate the drop between 2008/2007? If phrased another way, I suppose they could provide useful context, but here, they really don’t: sales are down, but last year they were up. Huh.

Houses — don’t know how many, since TREB only releases inventory information when it’s in its interest, not when inventory is reaching rumoured all-time highs — are taking longer to sell, but according to TREB head Maureen O’Neill, that’s a good thing: “This has given buyers and sellers a little more time to make well-considered decisions.”

Where are the hot spots in the GTA, you wonder? Well, there’s Brooklin. Where? Brooklin, Ontario, population 15,000.

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Wonder how many additional house sales were needed in Brooklin to increase over 35% last year’s June sales — 5?

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