I was hoping to get a blog done yesterday to discuss the ongoing crisis but didnt…with the news that the FSA chief has resigned due to the whistleblower comments of yesterday, I have more discuss!

In fact, rather than prattle on like so many currently do as to the why’s and wherefores, I’d like to offer another solution. Split the retail and investment banks completely…. Of course, it is likely that the investment bank is funded from the retail banking part of each Group, so whether this ever happened is open for debate. However, with banks running to the taxpayer tail between their legs, it’s about time the taxpayer demanded and got what they were after.

What is it the taxpayer wants you may ask? A secure and well run bank for starters. A return to the days when you could call in at your local branch and talk to someone who could make a decision. I recently walked into my local branch to get some old bank statements and was told I had to write off and I would be charged £30 for the pleasure! The fact that a printer was right next to my personal banker did not seem to help…

Bank customers also want a return to customer service as at least an equal to a bank’s other primary objective of making money (it is not keeping your money safe!). If a bank wishes to gamble with funds through its investment division it is quite entitled to, but not at the loss of security for its customer’s deposits. The only alternative can be that the two divisions are split, with tax payer money funding the retail bank only (and therefore its improved service) whilst the investment bank fights on it own to get itself out of the trouble it got itself into…..In this instance retail banking would not suffer.

Unfortunately this is not the case, and as a result retail banking will continue to suffer whilst the cash machine known as taxpayer funds are diverted into the investment division to prop it up (or retain the usual profit margins, commonly known as “re-capitalising”).

Businesses that are failing are left to die, as we all saw with Woolworths. Why shouldn’t that be the same for investment groups? Split the banks, nationalise the retail side until it improves, and let the investment division fight like we all have to…saying sorry to government this week is not, and should not, be enough!

As we like to do at Discover and Invest, let’s look for the solutions to our needs…

After 11 months of continual house price falls, it would seem the run is finally over, at least according to one leading bank.

According to the Halifax, the price of UK homes rose by 1.9% in January, and data based on mortgage approvals showed that the average house price reached £163,966.

A quote on the BBC website reads:

“There are some very early signs that market activity may be stabilising, albeit at quite a low level,” said Halifax chief economist Martin Ellis.

“Nonetheless, continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to mean that 2009 will be a difficult year for the housing market.”

Although this news is somewhat unexpected, it does contradict the survey released from Nationwide last week which reported prices had in fact fallen by 1.3%, so really it is up to you who to believe. But when more banks and mortgage companies release their figures, we will be in a better position to know the more accurate standings. Even so, it is great news that house prices are now starting to rise again, which could indicate the prices have fallen as far as they are going to go, something we are all hoping for.

In other news today, the Bank of England is expected to cut the interest rates again, with most predicting another 0.5% cut, taking the rates down to an amazing 1%, great news for those of us on tracker mortgages. The news will come later this afternoon, with our Managing Director Chris Davidson offering his view on whatever the conclusions may be tomorrow.

The forthcoming cut is not so welcomed by some business groups, based on the fact previous reductions have failed to help; they do not want to see another cut today. They would rather the bank increase lending, which to many small and medium businesses is a very valid point to be making. The Federation of Small Businesses (FSB) is one of the business groups saying it would prefer rates to stay on hold for February, according to the BBC.

So, house prices up and interest rates down, many will begin to ask the question this morning, is the recession beginning to ease, or have we just had a good month ahead of even worse times to come. A pessimist or an optimist will provide different thoughts, opinions and conclusions, but if the report is accurate, it really is a great month to be buying property as you might not get a chance to get it much cheaper.

Don’t forget to check out our latest BMV property deal by clicking here, we only have this one unit left, which we expect to sell today.

It seems like such a long time ago now, but it was only a matter of a few months ago that Icesave collapsed which plunged many UK savers’ funds into chaos.  Speaking to friends in Reykjavik at the time, they had a collective bleak view of their nation’s economy and were understandably concerned. Therefore it caught my eye flicking through the paper a few days ago when I saw a headline worded something along the lines of “Iceland to the retail crisis rescue”. Hmm, interesting, I thought. Thus I took the time to have a read of this and see what had happened.

Now this you could easily put down to stupidity on my part. However, as someone who neither purchases nor consumes meat products I have not felt the need to enter an Iceland frozen food store for some time! Indeed it was not the country that had made the headline in this instance but the retailer, who announced that they had purchased 51 former Woolworths stores creating somewhere in the region of 2,500 jobs.  As a keen media watcher I can remember the pre-Christmas scare stories of Woolworths demise and the job losses that would arise from it, but isn’t it funny that articles regarding this and other possible acquisitions were kept quiet until now when surely they were already in pending and certainly speculative?

So what of other acquisitions? I have also read keenly that the Co-op group have won approval to take over Somerfield, although in the process have been forced to sell 13 of their own stores, with Waitrose waiting in the wings heading the queue to add these to the 9 others they intend to also open in 2009. The articles reporting on these give approximate figures of between 5-6000 new jobs being created in addition to the thousands who will keep their jobs but simply change uniform.

I will watch this with interest, particularly if the Somerfield brand ceases to be. The shopping arcade by where I grew up is dominated by 2 supermarkets on either side, one Co-op and one Somerfield! Competition has been fierce between the two over the decade or so I lived there and even before when Somerfield was Gateway. Now will there be 2 Co-ops instead?

And it doesn’t stop there either. Waitrose are not the only supermarket chain announcing expansion plans. Sainsbury & Tesco will create around 15,000 new jobs between them this year as they too open new stores and no doubt in recognition of the paradigm shift that has seen many people providing the “less reputed” chains with their patronage recently.

And it’s nice to read isn’t it? We’re in the times of doom & gloom are we not? Personally it makes perfect sense. I’ve long been an advocator of the theory that in times of recession and economic difficulty, recession proof industries continue to flourish if investment is achieved. It’s fair to say that there is a degree of recession proofing when one considers the food retail giants in that we must eat! We must buy food!  Therefore these businesses investing in their futures now should not come as any surprise, and as the economy begins to recover it will be these who prosper further.

It appears that the first chunk of money RBS received wasn’t quite enough. As predicted by many, another bailout has been announced, and it is also being predicted that it will not be the last.

We surely have to start questioning the government’s role in this episode. Having part-nationalised the bank, the government have representatives at board level, in theory to steer the bank to safety and to get it lending again. So far it appears neither has happened.

What also seems to be the case is the lack of transparency where the level of debt is concerned. Do we really not know the total level of debt that RBS owes? Why is that? Gordon Brown today has said he is “angry” with RBS for the debt but how is it he did not find out about this at the last bailout?

Whilst this chaos continues apace, the taxpayer is continuing to foot the bill. Some say this is essential to the economy as we cannot have the banks failing, which we can’t. However, it does have the taxpayer over a barrel. The biggest problem is the huge sums involved. What does billions of Pounds mean in reality for the taxpayer? We aren’t going to know for a year or two that’s for sure. The effect on the economy then , in terms of inflation and increased public debt, could be worse than the problems we face today.

It is difficult to know where this will all end. With light regulation, private sector firms deemed too big to go out of business are safe in the knowledge that the taxpayer pot is available to save them. The biggest case to answer is the lack of transparency however, not just here but also in the US. Our elected representatives are taking measures on our behalf that is not only costing an astronomical and unprecedented amount of money, but that also concerns our savings. In light of the seriousness of this episode, we as citizens have a right to know how the funds are being spent and what the true state of the balance sheets of these companies really are.

The US unemployment rate released on Friday has reached a 16 year high of 7.2% with 524 000 jobs lost in December. The Pound has maintained its recent strength against the Euro as markets focus on the ECB interest rate decision due on Thursday.

Pound Sterling - UK Markets

The Pound continues to enjoy its recent bounce against the Euro, trading at 1.11 this morning although it has slipped back to 1.49 against a stronger US Dollar.

Despite negative data released on Friday, the Pound remained strong over the weekend. Industrial production fell by 2.3% in November, taking the yearly decline to 6.9% and it is now estimated the UK economy has contracted 1.5% in the fourth quarter. Sterling has reached its highest level in nearly a month against the Euro after nearing parity last week and has risen 7.1% on a trade weighted index. Support for the Pound is coming from distinctly negative sentiment in the Eurozone and market focus on the pending ECB interest rate decision. There is no data released in the UK today with retail sales and trade balance figures out tomorrow.

Euro - European Markets

The Euro has lost ground over the last week, trading at 1.33 versus the US Dollar this morning and 0.89 against the Pound.

The Euro has declined on speculation that the ECB will reduce interest rates when it meets on Thursday. The IMF’s Managing Director Dominique Strauss-Kahn warned yesterday that Europe is “underestimating” the needs of its economy and the Euro sunk to a one month low against the Yen. While the ECB initially shunned the rapid reductions favoured by the Federal Reserve and Bank of England, contraction in the European economy is forcing the ECB into revising its interest rate policies. The current interest rate is 2.5% and a 0.5% cut is expected. ECB President Trichet is to give a speech today.

US Dollar - US Markets

The Dollar is stronger across the board internationally, gaining on its major currency partners as unemployment figures dampen expectations of a quick recovery from the economic crisis. The Dollar is trading at 0.66 versus the Pound, 0.74 against the Euro and has gained over 1% against the Australian, New Zealand and South African currencies.

US unemployment figures released on Friday were distinctly negative as expected, showing a 524 000 rise in unemployment in December. This takes the official unemployment rate to 7.2% and shows over 1.5 million jobs have been lost over the last 3 months. Effects on the US Dollar were mitigated by heightened risk aversion internationally and the economic outlook is expected to stay negative until mid 2009 by when fiscal policy and lower interest rates may provide some relief. There is a series of US Data out this week including the crucial combination of industrial production, retail sales and consumer sentiment. Obama’s inauguration next week could provide a source of strength for the Dollar and balance of trade figures are out tomorrow.

Other Currencies - Highlights

The Australian and Kiwi Dollars both lost ground against Sterling over the weekend despite negative industrial production data from the UK. This can be seen as a market correction following the overselling of Sterling towards the end of 2008. The Bank of Canada Business Outlook survey is due tomorrow.

In early 2008, Birmingham Midshires became the last lender to ditch the controversial, yet rather popular, 125% mortgage. These mortgage and loan deals, allowing people to borrow more than the value of their home, were often criticised for letting borrowers take on large debts, most of which is really starting to backfire in the current climate as people really struggle to cope with the payments.

It is estimated that around 20,000 people a year opted for these types of mortgages since they were introduced, mainly first time buyers who have struggled to get onto the housing ladder and were left with little other option but to effectively borrow beyond their means with these types of mortgages.

They were also aimed at older single people, most likely divorcees who have left the family home and have no savings and therefore were left with no other option, if they wished to buy rather than rent.

Fast forward just under a year and the mess, devastation and problems this type of mortgage left behind is only now really starting to hit home.

With house prices dropping month by month, these types of mortgages are starting to become a noose around the neck of their borrowers, with many now struggling to cope with the repayments, or certainly beginning to fear the worst over the next couple of years.

Northern Rock and Abbey National came under massive criticism and scrutiny for offering these types of mortgages a few years ago, and many others followed suit, but the beginning of 2008 saw every one of these products removed from the shelves, possibly and lesson learned but too late for many?

The mortgage immediately locked the buyer into huge negative equity, owing more than their property is worth from the very first day they moved in. Did these mortgages and this type of borrowing contribute to situation thousands of home owners find themselves in now? I think the answer has to be yes, but for the mortgage companies to take all of the blame is somewhat naïve, after all, would you pay 25% more for products in a shop, or would you just wait until you can afford them?

Should the mortgage companies have been allowed to do this or does it lie with the individual borrower to sit back and really debate whether the idea of over borrowing was really worth it? Ironically, if these 125% mortgage buyers had waited until now, not only could have entered the housing market, they could have done it so much cheaper and could have afforded so much more.

Although this type of borrowing helped thousands of first time buyers get on the housing ladder, as history continues to be made, the 125% mortgage will probably fall into the category, which should be titled “We Really Shouldn’t Have Done That”.

So another rate cut by the Bank of England to the lowest ever in its 315 year history; quite something!

The next couple of years will tell us whether these cuts will work or not, but it does seem in the short-term to be counter productive.  Retail banks are not lowering their mortgage rates because the LIBOR rate is too high, and the lowering of interest rates greatly affects savers at the very time when the government is asking us to save more!  Therefore it is questionable as to who it helps in the short term.  VAT has been reduced, but on the typical item of clothing, say at £30, this is hardly putting money back in people’s pockets.

There are even suggestions that the government will have to “expand the money supply”, which to you and me is printing more money and potential inflation.  If this happens, the question that follows is who gets this new printed money?  It’s our old friends the banks of course.  The government will buy assets in the banks in exchange for newly printed money.  However, I am pretty sure that was what happened in the recent bank bailout, no?

Ultimately, there may well be a shift in consciousness here.  We have been living in a false economy for some time built on credit that doesn’t seem to exist.  “Where has all the money gone” seems an apt question right now.  With debt levels so high, the money supply may have naturally contracted with the increasing payments people need to make.  The only action that may be logically left for the government is to increase the money supply to make up for the shortfall.  However, we are walking into an inflation minefield, the one the current Prime Minster said would never happen again.

I believe we need a mentality shift away from credit, and until drastic action is taken, such as cancelling large percentages of debt, the current problems may well persist.

Sterling has appreciated against the Euro following the release of negative economic data from the Eurozone this morning. The US, Australian and Kiwi Dollars are trading near recent highs as interest rate cuts are predicted from the Bank of England and ECB this month.

Pound Sterling - UK Markets

Sterling has started the New Year with a bullish run on both the Euro and Japanese Yen. On New Years day the Pound traded at a record low of 1.02 against the Euro but has since bounced back to the 1.09 region as data suggests economic downturn is starting to gain momentum in the Eurozone.

In an interview with the Financial Times this morning, Chancellor Darling has described the UK financial situation as ‘difficult’ and conceded he may have to revise previous economic forecasts. Yesterday Debenhams, Next and Marks & Spencer released negative sales figures with M&S to cut over 1000 jobs as the tough retail climate impacts on retailers. UK car sales also fell 11.3% in 2008. The January interest rate decision from the Bank of England is due tomorrow and markets are pricing in expectations of a 0.5% to 1% reduction in the base rate. Producer price index and industrial production figures are due on Friday.

US Dollar - US Markets

The Dollar is currently benefiting against the Pound and Euro, trading at 0.67 and 0.73 respectively as further negative economic data is eroding support for the currencies.

Data has been light in the US over the New Year period and the Dollar has climbed to mid-December ranges against the Pound and Euro. Oil has risen to $50 a barrel amid supply disruptions in Russia and the Ukraine. New mortgage applications and employment figures are released in the US today and are likely to induce further Dollar volatility.

Euro - European Markets

The Euro has slid back from recent record highs to trade at 0.91 this morning against the Pound and 1.35 against the US Dollar.

The Eurozone producer price index released this morning has declined 1.9% for November, the largest drop since records began in 1990. Inflation has also fallen to a 6 year low of 1.6% ensuring deflation is now a central concern of the ECB. Pre-emptive interest rate cuts have been mooted my members of the governing council, contributing to some Euro weakness. German unemployment has also risen for the first time in 3 years and the export driven German economy has now entered recession. Consumer confidence and GDP figures are due for the Eurozone tomorrow.

Other Currencies - Highlights

Australasian currencies have benefited overnight as markets are pricing in expectations of further interest rate cuts in the UK and Eurozone. The Australian Dollar remained in high trading ranges against Sterling and the Kiwi Dollar was also strong. The Bank of Taiwan has cut interest rates this morning by 0.5 to 1.5% and Australian trade balance figures are due tomorrow.

It’s early January 2009, and talk of the economic “downturn” (don’t you love how no-one can say recession anymore) continues apace.  What strikes me most is that we continue to go over the same points about why we are where we are, instead of coming up with and debating a number of solutions to get us going again economically.

Therefore, I am going to stick my hat in the ring and put forward my somewhat controversial 3 point proposal, which I believe would not only have us up and running quickly, but also provides a long term solution to mismanagement of money:

1.    Cancelling of a large % of credit card debt

We all know the country to an extent is “maxed-out” on credit.  It is my belief that one of the main reasons the banks aren’t lending is because so many people simply do not qualify for further lending from them ie. The risk has risen astronomically.  This problem is not going to go away anytime soon.  Huge numbers of the population pay off only the minimum amount each month, which eventually leads to defaults over credit limits.  It is all very well to say that we need to start paying off this debt, but it is my belief that many simply cannot.  Wages have not increased at a decent rate over the last 10 years and with rent, living, transport and credit commitments, many are really struggling to make ends meet.  They simply have no leeway to start saving to pay this increasing debt off.

There are many points to debate about this route, but I cannot see a better alternative.  Either the population goes bankrupt or we find a solution to put money back in people’s pockets. Credit companies have been profiting for years at 20%+ interest rates.  Either a hit is taken by them in the short-term, or consumer credit is lost completely in the long term.

Some will argue why bailout people who can’t budget properly?  Good point.  Firstly a precedent was set with the financial and carmaker bailouts.  The bigger the danger to the economy (banks/deposits, carmakers/jobs) the better chance of a bailout.  Isn’t the population and total consumer demand too big to go under too?  As mentioned in a previous blog at length, clearing most debts will enable a large % of the population to have an increased level of income, and therefore kick start the economy again.  Therefore an immediate consumer bailout is needed if this “consumer demand” is to be saved.

However, the next question is: how do we stop this crisis occurring again once credit is again available?

2.    Regulation of the credit system in particular credit cards!

Once credit is back to acceptable levels, the levels of credit have to be managed so that the population is protected from over borrowing and the economy can grow at more realistic levels of actual growth, not false bubbling.  Credit could be solely issued under banks, who are able to match bank account track records with the acceptable levels of debt.  A points system or a number of cards for different purposes could be in place to ensure that individuals do not buy too much of one thing or over commit themselves.

This is however a very political question; how much trust should be placed in the general public to manage their own funds?  Based on the current evidence, one has to say in general, not much!  It is quite true that many know how to run their finances correctly, but it is also true that many more do not.  I believe this is down to the lack of money management classes in schools, which is the topic of point number 3.  The fact therefore remains that if you don’t regulate, you end up in situations like the one we face today, which in the end affect everyone…

So to my final point and a long term solution I hope to the consumer credit disaster:

3. Make money management classes compulsory at all schools from the age of 15-16.

Perhaps this can be a compulsory GCSE.  As mentioned earlier, many are not good with money because no-one has taught them.  Combined with a culture of buy now pay later and an at times staggering belief within the population that property prices will never be subject to falls again leads us down this treacherous path. Let’s get good money management skills in the classroom, and not just for kids.  It could act as a qualification for more favourable lending conditions in tandem with proposals in point 2.

Another solution could be intern programs at a variety of businesses from the age of 16 to understand how they work.  The owners of shops are well known for introducing their children to the business at a young age and it can surely do no harm for this to be expanded through the population.  Some learn in the classroom, some learn on the job…

So there we go: some early proposals to get us going.  Whatever you make of the government’s actions, they are trying to come up with solutions.  I believe it would also help if we were more active in trying to find solutions too.

I am A Buy To Let Investor.

I know, I am sorry, I have contributed to the current crisis, made sure that many young people can no longer afford to live anywhere and also made money from banks and run down areas.

For this I can only apologise.

But, I may only have two houses in my small portfolio of UK property, but in today’s current investment orientated world, I would be labelled a Buy to Let Investor. This term should traditionally imply someone with 20 houses all over the UK and possibly the world, with a combined worth of many millions.

Isn’t that what an investor is?

Well, these days no. Whether you put some money into a small portfolio of houses or you take chances on the stocks and shares, you will be classed as an investor.

According to Wikipedia, an investor is:

“An investor is any party that makes an investment.

The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. Less frequently, the term is applied to parties who purchase real estate, currency, commodity derivatives, personal property, or other assets.”

The question has to be, where do you stop becoming someone who has saved a little bit of money in an ISA, which is an investment of sorts, to becoming an investor? I do not think I am an investor, more someone who has a couple of houses in the North, looking to make a long term capital gain on their worth, which in one sense is an investment, but on the other is just a more secure bet of putting surplus money into something that even with the doom and gloom in the media, will make some money, especially if you are taking a 5 or 10 year plan.

Investor is a word that gets applied to anybody these days, and if you were to ask most people labelled by this term, I would guess many, if not the majority, would probably not consider themselves to be an investor. The years of having to work in London, wear a suit and carry a funky leather briefcase and laptop to be classed as an investor are long gone, and now all you need is a laptop, cup of coffee and a UK Bank Account.

So what types of Investors are there?

Well, according to Wikipedia:

* Individual investors (including trusts on behalf of individuals, and umbrella companies formed for two or more to pool investment funds)
* Collectors of art, antiques, and other things of value
* Angel investors, either individually or in groups
* Venture capital funds, which serve as investment collectives on behalf of individuals, companies, pension plans, insurance reserves, or other funds.
* Investment banks
* Businesses that make investments, either directly or via a captive fund
* Investment trusts, including real estate investment trusts
* Mutual funds, hedge funds, and other funds, ownership of which may or may not be publicly traded (these funds typically pool money raised from their owner-subscribers to invest in securities)
* Sovereign wealth funds

The question I would raise is even if you own your own house, you are an investor. You are investing in the house being worth more than you paid for it and if you are on a repayment mortgage, you are looking to slowly chip away at your repayments to eventually own something that has to be considered an investment.

The walls and barriers have come down. Buy a couple of houses, you are an investor, buy some of the Discover And Invest Stamps, you are an investor, put some money into the Discover And Invest ambulance trading, you are an investor.

These days, we are all investors, for different reasons, purposes and methods yes, but deep down, everyone is an investor.