Member Info for LennyMac

No. The situation is not as bad as it seems. The oil price is a direct result of a deliberate policy by the main producer and is therefore not beyond control. The other side of the 'oil price' coin is that in fact for UK consumers, the effects of a declining price will be positive and we should see the impacts flow through in terms of lower inflation, lower prices for lots of consumer goods, lower petrol prices etc. The problem for our market- the FTSE- is that it is heavily weighted in terms of commodities producers and so pessimistic market sentiment, which is ostensibly focussed on listed commodities producers, spreads across the whole market. This effect of this sentiment isthe withdrawal of cash from the entire equities market. Why for example should a company like Whitbread, the owners of Costa and Premier Inns, see anything but positives in a declining oil price? It has great fundamentals and obvious room for sales growth. And yet, its sp has fallen by 20- odd percent in recent months like the rest of the FTSE. I guess my point is that the market decline we are witnessing is the result of a specific set of conditions that impact the FTSE disproportionately. Unfortunately, RBS is dragged down by market sentiment due to its fragile position as a non- div, state backed, organisation with lots of baggage. My view is that as soon as the markets can confirm that the oil price has stabilised, cash will flow back into equities and the FTSE will reflate. China is a different issue: market sentiment is overstated by the panic that seems to run through media narrative of the performance of its economy and this panicked speculation drives cash from equities. I can call it 'panic' because no- one really knows how good China's data are and what the leadership's plans are for stabilisation. A couple of weeks of jittery activity in a new and immature Chinese equities market and the pundits are declaring collapse! The Chinese economic figures will return to a normalised level quite quickly, albeit perhaps with lower expectations for year on year growth and this China effect will go away. Domestically, I think you are incorrect to link growing debt and difficult rents to the activity of the FTSE; I don't think one affects the other. From a market perspective, if rents were actually too high we'd see much higher unoccupied rates but in fact we see the opposite. Similarly, the increase in personal debt implies growing confidence in the economy and for personal prospects, not the opposite. I note that today's unemployment figures are unexpectedly bouyant (although I think they have a somewhat dubious basis, but that is another post).

You may be right about the Saudis using the oil price as an economic weapon against Iran and Russia but even the Saudis have a limit. I believe that they (and the Kuwaitis and Iraqis) are capable of producing a barrel of oil for about $10, much lower than any of their competitors. The US produces at about $35 a barrel and the Iranians and Russians are higher still, closer to $50 and in the UK, about $53. It might be possible therefore for the Saudis to force higher- cost competing firms (like US shale producers) out of the market AND hit the Russians and Iranians at a macroeconomic level, but the Saudis, like both Iran and Russia, have spending rates that require a price level closer to $50 a barrel. The Saudi attempt to maintain low prices is not sustainable, even for them. On another point, if you are correct about the 500,000 barrels a day from Iran, the impact is not likely to be as significant as you imply. Global oil consumption in 2015 averaged at about 94 million barrels a day.

Very sad.

Careful fellas. Stemmy's going to be all over this.

In fact, you are probably correct in your observation. I think the current market conditions and their effect on the RBS sp are an entirely different proposition: an unfortunate confluence of falling oil/ commodity prices, sluggish China data, anaemic UK data and unstable politics in the UK, US and Europe. If all these things were set aside my previous post might hold true; in economics, this abstraction of reality is called 'ceteris paribus'. However, I would hope that as the year progresses, these conditions will improve, bringing a little stability to markets so that institutional investors can take stock.

I have observed that over the last couple of weeks, as the government has ditched its review of banking behaviour, the media narrative has been that there is a softening of the government's approach to banking regulation. Vince Cable came out in opposition to government moves on Monday and it was widely covered as both news and commentary. If the narrative is correct, then perhaps larger institutional investors might see the financial sector as one worth taking more of a punt on in 2016.

Merry Christmas to everyone. Let's hope 2016 is a year of sustained rises with the odd pleasant surprise.

*25% of its sp value

Mailman, it would be more useful to say that RBS had list 25% of its so value since Feb rather than its market value surely, purely because of the relative volatility of the sp. Neep, your point about aspiration and abuse is a good one; a government that seeks to encourage aspiration and entrepreneurship must also act concurrently to ensure that the conditions also exist to monitor and enforce regulation against their abuse. The banking crisis is a good example of rampant abuse.

It is simply a feeling, but it seems like everything is gradually moving upwards in anticipation of the Fed announcement. However, my portfolio is full of real dogs and unfortunately, I've had this feeling before.. 'as if millions of voices suddenly cried out in terror and were suddenly silenced. I fear something terrible has happened.'

Heh heh. So let me see if I have this right: If the DOW drops in one year, the chances of a rise the next year are about 2 in 3. If it rises, the chances of a rise the next year are about 2 in 3, and if it rises by more than 20% in one year, the chances of a rise the next year are 2 in 3. I guess the absolute, crucial, burning question is 'has the DOW dropped or risen this year?'

Welcolme back.

I have no idea. The problem is that it defies all kinds of logic or experience. RBS is a bit like a replacement bus service: most people who are on it are there begrudgingly, knowing that they thought they paid for an experience that should feel much nicer and should get them to where they are going much more quickly without having to go up blind alleys or down cul de sacs. Once on the bus, they find out that the driver has been ripping passengers and other road users off and that the bus is frequently pulled over for infractions of the law.

Just read my last post. Serves me right for writing without caffeine. I meant to say that prices might rise temporarily before returning to the usual scheme of things.

Hard to say. Perhaps temporarily. Then RBS's own intrinsic, maudlin gravity will kick in and we'll be back to normal.

I have a couple of observations: You've said 'All banks have basically struggled in this low interest rate environment' as though one has led to the other but I'd argue that the banks have struggled regardless of interest rate conditions. RBS' trading poor performance hasn't been the result of low rates but the terrible circumstances it found itself in post- bailout. Your point about higher rates directly increasing bank profits is an interesting one but is it actually true? Your implication is that a rate rise acts as a multiplier on profits; ie the higher the rate, the higher the rate of profit but I'd like to know how I could confirm it. Certainly in Australia recently, major banks have been raising their mortgage rates independently of the central bank base rate, which would appear to confirm what you've said. I think you are right that a close watch on the effect of the Fed's rate rise on bank share prices will be interesting and possibly indicative for us.

Fair enough. There is an argument that after a long period of extremely low rates the central bank should prepare people for normalised rates by gradual increments at the lowest levels. I think we will see it here; perhaps less than .25% rises.

In fact, I'd be more worried that the general slide across the ftse continues because it will drag RBS down regardless of an absence of poor RBS- specific news.For example, as far as I can see, there are no signals yet that the slide in commodities prices, particularly oil, is set to stop. Today may well be just a brief pause and the sp closes below 290.

A US rate rise would make assets owned by RBS in the US less valuable but would make US currency held by RBS more valuable. Bit that's all I can think of.

And pardon my ignorance, but why might a rate rise in the US be good for UK banks?