Saturday, November 9, 2019

FT Alphaville's Markets Live: The Great Financial Crisis, Day 0

With the demise of Alphaville's Markets Live on 8 November 2019 we are looking at some of the highlights of the experiment's thirteen year run (meaning that had it been a West End show, which at times ML resembled, it would have been the #21 longest run, edging out Jesus Christ Superstar at over 3360 performances)

PM is Paul Murphy, NH is Neil Hume

The early part of the week of September 1 - 5, 2008 seemed relatively uneventful. On Monday the 1st, after bashing American holidays Paul welcomed a new recruit using the silky-smooth segue skills which mark the true professional:
NH Also, you’ve going to have to tone down the American stuff in future – some might read it as anti-American.
PM Well, why’s that?

NH Well, isn’t our new colleague American?
PM Oh, yeah.

PM We must introduce Tracy Alloway, FT Alphaville’s first American recruit.

NH Just joined us from Bloomberg.
PM Just joined us after escaping from Bloomberg.
PM So, welcome Tracy. Been writing about Dresdner this morning. She’s got handy skills, like being able to work Bloomberg charts etc....

Come Thursday, Société Générale's Albert Edwards dropped a bombshell, one of the most accurate, timely, and terrifying market calls of all time. The markets picked up on it on Friday the 5th:

Markets live transcript 5 Sep 2008
Live markets commentary from

PM Ok – welcome to Markets Live
PM 10.59
PM This is FT Alphaville's daily market chat

PM We were going to go straight in to the market mayhem
PM But something else has cropped up ....
NH morning

NH RSA flying in a very weak market
NH up 8.1p at 166.4p
NH traded as high as 169.9p

NH heavy volume for this time of day
NH 19m shares traded
NH 5m done in the last 20 minutes....
PM Right -- special request now
PM Special request to one person – the esteemed SocGen strategist Albert Edwards.

PM We jest, of course.

PM Yesterday morning his long-suffering clients at SocGen got this:
****Alert****Economic and equity market meltdown imminent****Alert***
Last week saw the publication of Q2 US whole economy profits data. They were shockingly bad. Core measures of profitability are in free-fall and have now reached a tipping point, where corporate activity could easily implode. We have also reached the point where companies give up ‘manipulating’ their profits higher and admit they are actually in free-fall. A combination of economic and reported profits slumping will catalyse the next equity downleg.

PM Here’s a quote from his research that I love:
Typically we have now reached the point in the cycle where companies reach the end of the road on earnings manipulation and have to admit to their shareholders how bad things really are, sending reported profits diving. James Montier’s recent piece “Cooking the Books” suggests that some companies may indeed be doing what the title implies. But analysts currently see no prospect of a non-financial profits slowdown, let alone recession (see table below). Why? Because companies have not yet owned up to the mess they are in and told the analysts to downgrade their numbers!
PM So true, that

NH Well, Mr Edwards certainly looking rather smart over the past 24 hours.
NH You are going to have to revisit that idea of trying to make Alphavile the natural home of the structural bull.
PM I know, I know.

PM Okay, for those of you who’ve been stuck in tin box for the past day or so, a LOT of grief kicked off yesterday afternoon when the ECB tightened up all the criteria and penalities associated with it back-handed bank bail-out programme.
PM Now, everyone kinda knew it was coming – I believe we even discussed it here – but for once the market has decided that it’s worse to arrive than travel.
NH Worse to arrive than travel? That so mangled.

PM Mangled. That’s another good word. I’m going to put that on my crisp list.
PM Mangled Mutant PLC – what’s the ticker?
NH This ECB move has raised the spectre of very tough regulation of the financial sector down the road. Banks dropped like a stone yesterday afternoon.

NH The mood immediately fed through to Wall Street – where some fresh retail stats got everyone talking about recession again there.
NH So now we’re in some sort of downward spiral -- now taking our cue from Wall Street on the economy front – investors decided generalised global slowdown will hit commodity prices.
NH And so all the big miners are competing with all the mutant banks at the top of the Footsie loser board.

PM What a mess!
NH before we do, quick FTSE 100 update
PM Been as low as 5261

NH currently off 70 points at 5,292.4
NH so that only makes a bad non farm payroll number away from a fresh year low
NH that was recorded mid july when the index hit 5260.9....

Little did they know.....
More to come. 
See also Friday's installments:
FT Alphaville's Markets Live: The Fall Of Northern Rock
FT Alphaville's Markets Live: The Missing Early Transcripts

We were able to link to Albert before the American open that September Friday with "Meltdown-Société Générale"

***Alert****Economic and equity market meltdown imminent****Alert***

How timely was Mr. Edwards' alert?
On Sunday September 7, 2008 Fannie Mae and Freddie Mac were placed into conservatorship.
On Sunday September 14, 2008 Merrill Lynch agreed to be acquired by Bank of America to avoid a Reg. T shut-down when markets re-opened the next day.
On Monday September 15 Lehman filed their bankruptcy petition.
On Tuesday September 16 AIG became a 79.9% subsidiary of the U.S. Treasury.

Within 10 more days the Nation's largest thrift, WaMu was seized and five days later Wachovia gobbled up.
Good call Albert.