Cutbacks next!

Swedens finance directors seems to think that the economy is even worse than in September. Most of them seem to think the only way to cut cost and keep profits up are through employment cutbacks, according to SEB finance director index.

SEB's directors questionaire which is answered by Swedens 50 largest stock listed companies, shoed that November was a record low on market confidence. One question asked was which is the best solution to increase the companies profitability and 60% answered to decrease the employment force.

The previous times the answer would have been increase in volume and price increase to better profitablility, but now they only talk about costs. This is a trend which has not been seen before and this showes that cutbacks will probably continue, accroding to analysts at SEB.

The investigation showed that the reason for the anxiety by the finance directors is the recession. It was the recession signs rather that the financial signs like the banks willingness to lend and the companies financial position that gave the directors its gloomy outlook.

The investigation showed one positive improvement. The future positive outlook for the credit market. The directors believed that because of the recent huge deteriation of the credit market it could only be a small matter of time before it would start to go up again.

It is time for a rise

There were 53 registered insider trades this week, 47 of these were to buy and 6 to sell. With tecnical support and considering the force of the stock exchange fall, these signs signals that the bottom might be near, according to Investtech.

The report from Investtech shows that 89% of all registered insiders trades were to buy. That many people with insider knowledge are buying in this turbulent period can be seen from a longer perspective. During the recent quarter 82% of the insider trades were for to buy.

Investtech's trading report shows that when the stock exchange turns after a significant fall, interesting investment possibilities arise with large returns.

One of the companies that Investtech mentiones is Volvo. Volvo has lost more than 70% of its share price this year to 32 kr per share. This seems to be a good time for insider people to invest. The CEO both 10m shares, the head of finance, head of communication increased their share volume substaintially. This makes the share look very positive.

The It-consultant Know-it seems to have had an interseting change as the CEO bought 8000 more shares, after the share has lost 62% this year.

The CEO of Getinge belives that the share has fallen too much. 170kr in the beginning of the year to bellow 100kr this week. CEo bought shares for close to a million kronors.

Another Danish Fall

The Danish bank EBH was the 8th victim of the financial turmoil. The bank was forced to surrender.

EBH Bank gave a statement that it had serious economical problems on Thursday. The bank is not up to the standards of Danish regulations which has sparked the involvment of finanstilsynet. However the bank will continue its business for the time being.

According to TT the bank has a week to gather enough capital. If the demands of the regulators is not made EBH will loose its licence. The banks CEO Jens Nielsen said that it is very unlikely that he will gather enough capital in sych a short period of time.

"In the current Danish environment it is very difficult to get a hold of half a billion danish kronor" EBH, Jens Nielsen

The Danish newsagency Ritzau have made a list on all crises banks during 2008. The mess started in January when Bank Trelleborg due to several years of huge increases in ledning, the bank was taken over by Sydbank.

Roskilde Bank was the next victim. In July the bank showed insolvency and the month after the National Bank took over responsobility and operations. During fall Roskilde bank will be divided among three other banks.

In September, Nykredit took over the smaller competitor Forstaedernas Bank and Svenska Handelsbanken took charge in Lokalbanken.

The Danish government put in place a rescue package for the banks after seeing the possibility of even more bankrupcies. Several banks used this package to survive.

The next step for ECB

The European Central Bank (ECB) meeting accepted a 50 point lowering of the interest rate, they were deciding whether to lower by 75 or 50 points told by the ECB head Jean-Claude Trichet.

Jean-Claude Trichet also said the future outlook for price stability have been improved even though the risk is not comletely gone. Inflation will go down to 2% during th year 2009, as commodity prices, salaries and other prices will normalise.

He also said that the uncertainty from the finance sector is extremely high and the ECB will continue to supervise all changes very detailed. The economy in the EURO area has been weakened and that certain risks has been materilised. It is important that the ECB avoids policy mistakes and the "second hand effect".

The measures taken by the ECB must encourage confidence in the financial systems and prevent credit restrictions. There are several signs that the economic growth could be restricted due to the financial turmoil, protectionism and higher commodity prices. The inflation is high because of direct and indirect effects from the high commodity prices, which are now expected to fall and ECB thinks that the CPI will fall even more in the middle of 2009 as and effect of these changes.

There is a slower rate of lending to the households but companies can still get financing for long periods of time. It is important for governments to use the financial turmoil as a catalyst for continues structural changes.

Unlucky Hedgefunds

After a suprise announcment from Porsche, the Volkswagen's share rose more than 140%. Porsche told the press that they had acquired more than 70% of Volkswagen shares and at the same time hedge funds were trying to cover there short positions from a small amount of available shares in the market.

Porsche used derivatives to increase its share from 35% to 74.1%, this ignited an outcry from other market players such as investors and analysist. Several analysist and experts explained that this was a huge embaressment for European regulators and goverments. It was a total disrespect for all corporate governance policy's and regulations set up by the markets, governance expert Christian Strenger said.

Many analysist and hedge funds were betting on a share price fall from Volkswagen, so the huge rise in price meant that the estimated loss were around $15bn and only 5.8% of the shares were still availabe to buy up.

Many hedge fund managers were sure this was a very secure bet but turned out to be a big bomb in investors pockets. Volkswagen had the highest percentage of shares on loan to investors in all of Germany. The value of the company grew on one day to be worth around $153bn, which is more than all EU and US carmakers put together.

Another deep sea trip by Wall Street

After American earnings showed new dissapointment, US stocks fell to a new 5 year low as concerns about the future keept growing with this news. The company results were only secondly important as the glooming future was the main concern for investors. Energy and material were the biggest loosers with a plummet of 10.4% and 8.3%.

The S&P 500 closed at minus 6.1%, Dow Jones Industrial Average fell 5.7% and the Nasdaq Composite Index went down 4.8%, a bigg fall for the US stock market.

Many large corporation were not able to hold of this fall such as Boeing, AT&T, Merck and known as a very safe stock McDonalds even though they showed an increase in profit fell by 1.7%

Oil was the reason for the large fall in energy stocks as the price went bellow $70. This sector also had one of the worst drops this day. Baker Hughes the oil company dropped 22.1%, with the reason being as stated before, the confidence.

This large drop will have put more fire in the oven for the support of analysts predicting a uncertain and difficult future. The market is looking for short term positive figure which at the moment is very difficult to produce and will have to rather sooner that later change their strategy to more long term goals.

Finally US rescue plan is on course

A $250bn rescue deal to purchase stakes in a wide number of banks is finally on the way. Hopefully this will restore confidence in the banking system efter the recent turmoil US goverment officials said.

Mr. Bush said that this is not an attempt to take over the free system but to perserve it. This is only seen as a short term effort to restore confidence and to keep the system from total collapse. The money will come from the £700bn plan that came through earlier this week.

Federal Reserve Chairman Mr. Ben Bernanke said that they will not stand down until the system has been repaired and reformed.

This plan has been long awaited by the market and will come as a welcoming plan to both the public and the banks. The announcement comes after European countries have already put in place a rescure package itself.

Although these billion will come from tax payers the goverment is hoping that in the end they will come out of this crisis with profit after resale of the banks stocks to the market.

Panic avoided by German savings guarantee

In an attempt to avoid panic, Germany said it would guarantee all private bank account worth £438bn. Angela Merkel German chancellor said "We want to tell people that their savings are safe" as the financial crisis was spreading panick withdrawls from their savings.

German official's said the country's commercial banks had agreed to inject €15bn extra into Hypo Real Estate, the German mortgage and public sector lender, the bailout is now up to € 50bn.

Germany's guarantee was a done after Ireland last week to guarantee the six largest banks liabilities. UK and France and many more European countries were trying to learn the details of the new deal Germany had done. One UK official said that they were very dissapointed with chancellor Merkel's secret plans after she attended the economic forum in Paris only one day before.

The Danish goverment was the latest to guarantee all bank deposits in a move to calm and secure its peoples savings.

Asia up on expecting US deal

The Nikkei index was up 1% after news that the US senate would vote on a new deal later in the week. Japans index was not the only one that followed upwards after the US news, Australian and New Zealand stocks were up 4% and 3%.

One of the changes to deal that has been made are an increase on goverment guarantee from $100,000 to £250,000 in the hope that congress will be more satisfied. For an approval the new bill will need to have 60 out of the 100 senates voting for a yes. The Down Jones index saw some recuperating after the record one day fall.

Data from the Bank of Japan which showes a snapshot of the business confidence was on a minus for the first time since June 2003. This means that a majority of the large Japanese firms are staring to become very pessimistic about the future business conditions.

When will the crisis finally be over?

US goverment are on the verge to put in place the $700bn rescue plan that will hopefully put an end to the crisis which has had led to one of the worlds largest crisis.

Chairman of the Senate banking committee, Chris Dodd said "fundamental agreement" on the $700bn rescue plan, after a meeting between the two political parties meeting at Capitol Hill.

One detail which has not been settled yet is how fast the funds should be dispersed.

But people are still disappointed and angry and they do not know if they can trust the goverments plans.
Whether this rescue plan will succeed or not is difficult to say. The markets and people are hoping this will be the large involvment that will change things around.

Can Sachs and Stanely survive alone?

Goldman Sachs and Morgan Stanley have said that they are not interested in Merging or Aquiring a commercial bank. They said that they had the financial strenght to continue with their business model.

Sachs reported their biggest drop in quaterly earnings since it went public 9 years ago, whilst Stanley put up a hard fight not too loose confidence with investors.

As Lehman Brothers have collapsed and the merger of Merrill Lynch with Bank of America, pressure is on for the last two major investment banks to turn around recent bad results.

Goldman chief financial officer have said that they will benefit from the demise of competitors and they have better pricing power and that will give them a better competitive advantage.

The counterpart for Morgan Stanley said that "these markets are all about confidence and we are very confident in our business model and balance sheet".

Time can only tell us whether these last two remaining investment power houses will succeed.