Bob Diamond

Bob Diamond has a reputation as one of the top leaders in finance. I have serious reservations about him. Take a look at his biggest strategic decisions over the past 3 years:
1. Tried and failed to buy ABN Amro, at a price only marginally less than RBS’s ruinous “successful” bid.
2. At the peak of the crisis in 2008, took on 8,000 new staff as part of the Lehman to increase the bank’s global presence.
3. Refused government assistance in early 2009, choosing to take his chances on the bank’s own ability to raise private finance.
4. Sold a solid recurring-fee based business, BGI, to Blackrock at a good price but a good proportion of which went to himself and a select few managers.
5. Continued to be the most aggressive recruiter on the street throughout the crisis.

Every one of these decisions, at least except number 1 which was not so much a decision as a bit of help from the greater fool (I’m talking to you Fred Goodwin) theory, looks good in retrospect.

However many of these look to me like huge gambles which could each individually or collectively have brought the franchise to the brink and makes me think he is doubling up on red repeatedly. The one thing history teaches us is that these streaks inevitably end in tears.

I also can’t help but think of the parallels with UBS and John Costas. There was the transformative acquisition to turn the company into a global power (Lehman/Paine Webber), the constant expansion and recruitment in every market available, the move away from the more staid businesses (sale of BGI/turning the private bank into an extended sale force for the IB) and the self serving nature of some moves (sale of BGI/setting up Dillon Reed Capital Management).

I had a good run buying Barclays shares in 2009 at 50p and riding them up to 150p before I bailed but I would not touch these shares now. I think they will run up (non-appearance of P3 allowing) as they continue to reap the rewards of a lack of competition, weak GBP (reporting currency) and a ridiculously steep yield curve, but think that at some point in the next few years Bob’s chickens will come home to roost in a fairly disastrous way for Barclays shareholders.

Banksternation weekly pnl review

The Banksternation portfolio was up around 0.5% for the week. Closed my PSQ (short QQQQ) position last week after feeling too much cold steel in the melt up. My 2 core equity positions both performed well on broker upgrades but my TLT position (16% of the book) took a hammering on Wednesday and Thursday. I added slightly to it at 88.75. Counting my gains and losses in GBP, while investing in various currencies has slightly flattered the portfolio but after 2009 I will take my gains wherever they come from.

Investment thoughts

I will start to discuss some of my investment ideas but thought that my priorities should be on the record. I have a minimum holding period of a month for compliance reasons. This means my agility is somewhat limited and I have found it VERY difficult making money from the short side.

I am also too poor to trade margin which rules out futures, cash bonds and shorting individual stocks. This pretty much leaves me with the what the ETF universe can provide in terms of instruments to trade bonds, rates, commods and equity indices.
However I think this puts me in the same boat as the vast majority of people so I hope that my ideas and discussions will be from a more relevant slant than most of the blogs I follow, whose contributors are vastly more articulate and experienced than me but also have the ability to trade short time horizons and hedge in and out of core positions.

I find the biggest difference for me is that I have to be a lot more certain of the trend from both technical and fundamental perspectives before I enter the position and do not have the luxury of tentative trades with tight stops to avoid the big losses. Would love to hear from anyone who is in a similar situation so we can compare strategies.

Greek anecdotes

Greece is screwed. They have taken the piss from the moment they entered the Euro, running structural deficits virtually every year since 2002. Their pleas for help from within Europe will be met with an entirely justifiable "nein". Contrast this with a country like Spain which is in trouble as well but ran structural surpluses between 2002 and 2007, as well as having a much larger potential impact on the European economy. Their case for a bailout will be vastly stronger when the time comes.

Greece has to re-finance €50-60bn of debt every year for the next 5 years, this in an economy only slightly larger than Scotland and Wales. The interesting thing is how not if Greece defaults.

A sovereign default is a different kettle of fish to a corporate default. Greece is unlikely to fail to pay a coupon, however much the holders of Greek cds would like that to happen. The default is likely to take the form of a dawning realisation from bondholders and the Greek government that a restructure is the best course for both of them. A cheap money IMF loan might put this back a couple of years, but without a massive scale boost to productivity from within Greece, the interest costs will eventually overwhelm the economy.

Anecdotally they have other issues on top of this. My flat in London was recently purchased by a Greek cash buyer, and the agent told me this is increasingly common. This surely suggests that Greek banks are going to face rising liquidity issues as Greeks try to get their assets out of the country and avoid the tax clampdown promised by their government.

I also saw a story that their tax collectors had gone on strike. That nicely sum up the scale of their problem.

Banksternation blog launch

Am launching this blog to comment on financial markets with a European slant.