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British banks and their shareholders are having a tough old time of it. But their woes have made at least one person an awful lot richer.
Hedge fund manager Crispin Odey has paid himself £28m after his hedge fund made £55m from betting against the sector. And well done to him. After all, plenty of banking executives got hefty bonuses last year for losing money, so people can hardly complain when someone gets a bonus for actually doing his job competently.
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Now Mr Odey was apparently a bit early in his call. "We had a very average 2006 because he was positioned and it wasn't working yet," Odey Asset Management chief executive David Stewart told The Telegraph.
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But it shows that it's not true that no one saw the credit crunch coming. Sure, we may not have known exactly how the blow-up would manifest itself. But it was obvious to many people in the City and on Wall Street that something had to give.
The bad news for the banks is that it seems Mr Odey reckons there's still a lot of money to be made from betting against them
There is more weakness ahead for the banks
Sources "close to" Odey Asset Management tell The Telegraph that "we can see why there might be a rally [in banking stocks] in the short term, but in the longer term we see more weakness ahead. Banks will need a lot more capital."
It is certainly going to be tough out there. HSBC (LON:HSBA), one of the most resilient banks of the past year, reported more write downs yesterday (see: Why there's more bad news to come from the banks for more). But perhaps the most worrying aspect of its results statement was its warning on the outlook for Asia.
Banks with emerging market exposure have been seen as sheltered from much of the carnage. But as HSBC chairman Stephen Green put it: "I don't believe the emerging markets have completely decoupled. There is no way a serious downturn in the US will leave Asia immune."
The group still expects the region to grow, but "with less momentum than in the recent past." Profits at its Hong Kong unit fell 8% to $3.1bn, where "it is apparent that corporate activity in some sectors is slowing."
So it's unsurprising that Asia-focused Standard Chartered (LON:STAN), the other stand-out performer in the banking sector, saw a slide in its share price yesterday. Meanwhile, commodities have also been falling sharply as investors start to realise that slowing global growth has to have an impact on demand for raw materials, regardless of how rapidly China continues to industrialise. The CRB Commodity Index had its biggest one-day fall since March yesterday, and fell 10% across July, the biggest fall in any month since March 1980.
We've been warning since just before the start of this year that it was a good time to start taking profits on commodity-related stocks, in particular the miners. We've also been increasingly sceptical about how high oil prices could remain in the face of slowing growth. Although we are believers in the long-term commodities supercycle' (emerging markets will keep growing, and that means that structurally, demand is going to be higher in the long-term), no market goes up in a straight line.
As David Fuller (also a supercycle believer) of Fullermoney puts it, we do seem to be at the start of "a lengthy medium-term correction, the duration of which will be determined by the extent of the global economic slowdown, geopolitics, and weather for the agricultural sector."
Why Asia's rise means a bright future for the global economy
However, while the Asian growth machine might start to judder somewhat, it's still a much better place to be doing business than the West right now. Even uber-bearish economist Nouriel Roubini, who has consistently and correctly pointed out that the financial crisis is much worse than most people believed possible, is less gloomy on Asia and the longer-term outlook.
He reckons that "the global economy is going to grow at a sustained rate once this downturn is over the emergence of China and India and other powers is going to shift global economics and politics radically, and the world is going to be more balanced in the future," rather than relying on the US. The change won't be easy, and many workers both blue collar and white collar - in the developed world will find it hard, as once-safe jobs go East. But overall, says Roubini, "I'm quite bullish about the state of the global economy, and I'm positive about the medium and long term."
That sounds reasonable to us and in fact, we've just launched a weekly free email, MoneyWeek Asia, to keep a closer eye on what's going on in the region. If you haven't already signed up for it, please click here to do so.
Turning to the wider markets
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UK shares continued to fall, with the FTSE 100 index sliding 34.5 points, or 0.6%, to 5,320. Miners again led the market lower, with Lonmin shedding 5%, Antofagasta and Vedanta both losing 8% and Kazakhyms plunging almost 10%. Banks also eased after the cautious tone from HSBC, down 1%, with Standard Chartered sliding 5%. But Punch Taverns enjoyed a sharp 21% bounce as bid talk circulated, while Trinity Mirror recovered 14% on a broker recommendation.
Shares in Europe also fell, for the third consecutive session. As in the UK, resource and banking stocks were hit. The Xetra Dax dropped 0.7% to 6,350 and the French CAC 40 lost 0.8% to 4,281.
US stocks fell too, with the Dow Jones Industrial Average shedding 42 points, or 0.4%, to 11,284, while the wider S&P 500 lost 0.9% to 1,249 and the tech-heavy Nasdaq Composite dropped 1.1% to 2,286.
Overnight the Japanese market eased slightly, sliding 0.1%, 19 points, to 12,915, though in Hong Kong, the Hang Seng slipped 660 points, 2.9%, to 21,855.
This morning commodities were weaker, with Brent spot trading down at $118, spot gold at $887, silver at $16.85 and platinum at $1553.
In the forex markets this morning, sterling was down, trading against the US dollar at 1.9579 and against the euro at 1.2625. The dollar was trading at 0.6449 against the euro and 107.79 against the Japanese yen.
And this morning, our national bank, Northern Rock, has reported a first-half loss of £592m, as late payments rose and it repaid £9.4bn of its Government loan. More than one in a hundred of its mortgages are now three months or more in arrears. Chairman Ron Sandler warned that the bank will be "significantly" money-losing for the rest of the year as credit conditions continue to worsen, reports Bloomberg.
Our recommended articles for today...
Why the Eurozone is heading for recession
- With its current poor economic reports, you don't need to be a fortune teller to see that the Eurozone economy may be about to head off over the cliff, writes Claus Vistesen. To read more, click here: Why the Eurozone is heading for recession
Credit crunch will send markets even lower
- The current bear market will continue for some time to come, and any short terms rallies will be based only on fragile optimism which is not shared by long-term investors. To read more, click here: Credit crunch will send markets even lower
