The ECB Asset Purchase Programme

WEEKLY COMMENT 2-10-2014

By Barry Edwards

The ECB Asset Purchase Programme

The European Central Bank (ECB) announced details of the Asset-Backed Securities Purchase Programme (ABSPP) and its Covered Bond Purchase Programme (CBPP3) which are the latest attempts to boost lending in the commercial economy, mainly for SME’s. This is in addition to the recent Targeted Long-Term Refinancing Operations (TLTRO’s) allowing banks to borrow from the ECB at low rates for two years; the funds must be used for commercial lending or the money has to be repaid. read more

The Analysis of Phones 4U

WEEKLY COMMENT 25-09-2014

By Barry Edwards

The Analysis of Phones 4U

The announcement last week of the placing of Phones 4U into administration by the owners, BC Partners, came as a surprise to everyone. The future of the company was dependent on long-term contracts with the major phone networks and phone manufacturers; the commission on sales were the sole source of income for the business which has been very successful in the past. Those contracts with the networks have either expired or were due to expire in the near future which would have left the company as purely a mobile phone sales business. read more

The Scottish Decision

WEEKLY COMMENT 19-09-2014

By Barry Edwards

The Scottish Decision

The Scottish Referendum has finally been decided with the result clearly expressing the people’s desire to remain in the United Kingdom. Although those people supporting independence have forced politicians to respect their wish to grant more powers to Scotland, it has opened up the whole debate of the ‘English question’ about making decisions on purely English matters.

David Cameron has confirmed that proposals for more devolution to Scotland should be formulated by January 2015, a very tight schedule, and William Hague has been asked to prepare plans for parliamentary rules for solely English matters. That can only lead to a bigger debate about how to devolve more power to the English regions which is likely to become a major feature in the party manifestos for the general election in May 2015. This has already started to some degree with Lord Heseltine’s plan slowly being implemented in the major cities. read more

The Scottish Referendum

WEEKLY COMMENT 11-09-2014

By Barry Edwards

The Scottish Referendum

The long build up to the actual voting in the referendum has finally inspired a wide range of opinions and statements from both national and international organisations. The history of the United Kingdom has involved many countries that have either been part of the old empire or as allies in conflict around the world. The possible separation of Scotland from the UK has generated sentimental concern that this referendum is even happening and all those who have commented believe it would have negative effects if the result was for secession. read more

The Ukrainian problem

WEEKLY COMMENT 4-09-2014

By Barry Edwards

The Ukrainian problem

 The two day meeting of the member countries of NATO that started on Thursday and the recent seven point plan put forward by Vladimir Putin are beginning to set in motion a resolution to the east Ukraine fighting by Russian backed rebels. The agenda for the NATO meeting is clearly sending a warning to Russia that territorial aggression into member countries will instantly instigate retaliation and Putin is attempting to persuade EU leaders that he is willing to negotiate a truce in east Ukraine while peace talks progress. read more

The Carswell Phenomenon

WEEKLY COMMENT 28-08-2014

By Barry Edwards

The Carswell Phenomenon

The resignation by Douglas Carswell, the Conservative MP for Clacton-on-Sea, to join UKIP has changed the political framework that was foreseeable prior to the general election in May 2015. It has singlehandedly made it more unlikely that the Conservative Party will win the election next year. This seems strange since Carswell is a genuine Eurosceptic and the only chance of the UK leaving the EU is for the Conservatives to win the election. read more

The Problem with European Growth

WEEKLY COMMENT 21-08-2014

By Barry Edwards

The Problem with European Growth

There have been several articles written this week about the problem of European growth as the news that the three main economies in the Eurozone did not grow or were in recession during the last quarter. These countries are the major constituent for the statistics of the region and that is a serious problem for politicians and central bankers who are unable to devise a satisfactory economic growth plan.

Mario Draghi, the ECB president, is speaking this Friday at the Jackson Hole central bankers gathering in the USA and we may hear something new that will change people’s opinion of the economy. Currently, the favourite is quantitative easing (QE) at the end of the year if the policy of providing banks with low cost funding for businesses announced in June does not work; this comes into effect in September. read more

The Bank of England Inflation Report

WEEKLY COMMENT 14-08-2014

By Barry Edwards

The Bank of England Inflation Report

There is nothing very surprising in the Bank of England (BofE) inflation report published on Wednesday this week; most of the content has been discussed extensively in the media during the last few months. The short summary from the report is as follows:-

‘’Robust, broadly based, growth over the past year has taken output to above its pre-crisis peak and unemployment has fallen sharply. Spending should continue to be supported by reduced uncertainty and improved credit availability. Over time, a sustained revival in productivity and real household incomes is expected to underpin the expansion. read more

Forewarnings about the Financial System

WEEKLY COMMENT 7-08-2014

By Barry Edwards

Forewarnings about the Financial System

 There have been cautions this week from two eminent commentators that the financial system is in danger of becoming unstable in this low interest environment. The main point being made is that risk analysis and assessment is not up to the standard it should be within financial institutions creating the possibility of further problems in years to come as interest rates rise.

The liquidity created by central banks is forcing investors to search for yield in the unrated bond markets around the world lowering the overall quality of assets held by institutions making the whole system unbalanced. The main problem is that when interest rise and investors want to sell assets at the same time, they will not be able to sell causing substantial paper losses which would not be recovered until the bonds are repaid. Since most investors want to cut their losses, fund managers would be forced to sell at much lower prices than a normal market would command. read more

European Bank Lending Grows

WEEKLY COMMENT 31-07-2014

By Barry Edwards

European Bank Lending Grows

The European Central Bank (ECB) announced the results of their quarterly Bank lending Survey (BLS) last Wednesday. The survey confirmed the trend of growth in Eurozone bank lending seen in the first quarter and shows continued growth of demand for loans in the second quarter, especially in the SME sector. Another important point is that all the 137 of the banks that took part in the survey expect this demand to grow in the next quarter. read more

The Dilemma of Economic Growth

WEEKLY COMMENT 24-07-2014

By Barry Edwards

The Dilemma of Economic Growth

Developed countries around the world have seen the largest injection of money into the financial system to resolve liquidity problems caused by the financial crisis. When this occurred in the past, although in a much more limited capacity, it caused rapid inflation within a short space of time resulting in the central banks increasing interest rates fairly quickly.

In this financial crisis, the vast sum of money injected into the economies of the developed world has had no impact on inflation anywhere. In fact, the biggest problem has been to prevent deflation which creates a cycle of depression of prices that is difficult to counter by usual monetary policy by central banks. In effect, this has been the reason for very low interest rates that has indirectly caused an asset bubble in stocks, shares and property in prime locations. read more

The Evolution of Funding

WEEKLY COMMENT 17-07-2014

By Barry Edwards

The Evolution of Funding

There was an interesting article in the Financial Times on Monday by Hugo Dixon about how capital markets and alternative finance can help Europe thrive. The main point made was that banks and governments are restricted by budget deficits and lack of capital to provide the resources required by business, therefore, alternative finance and the capital markets in Europe should take over and arrange the funding. Although these options are still small compared to bank finance, they could be expanded to fill the gap. read more