Betfair Official Blog

Daily View - 7th February

Are Northern Rock more sinned against than sinning?

"What on earth happened to Northern Rock," has been one of the big questions of recent months, up there with, "Cipriani or Wilkinson?" and "What on earth is happening to Britney Spears?"

The media consensus appears to be blaming the bank's strategists (for Northern Rock - not for Britney,) but before the summer (when credit crunch was still an unknown phenomenon), you can hardly blame the bank for following a short term borrowing regime when their risk on the lending side was also an exposure to short term rates. If they had borrowed three year money at 6.25% and then rates fell sharply they would have been looking at hefty losses as their clients would have expected to be paying lower mortgage rates in line with other lenders. When the credit crunch arrived, even an 'off balance sheet' hedge would not have been very helpful as this is not actual money, rather just a promise to pay a 'cash for difference' amount on the maturity of the deal.

Northern Rock were undone because they were an unashamedly "Mortgage Bank", concentrating in one sector when other banks had other areas to fall back on when times got tough.

Meanwhile the markets are looking to open pretty much where they opened 24 hrs ago, with the FTSE around 25 lower at 5845-5846. We spent much of yesterday in negative territory and only managed to close slightly to the good on a last minute spike to the upside. Trading remains cautious as punters continue to look out for shell-shocked stock and pick up small bets hoping for a turn around as the big dividend season approaches. Not many analysts have forecast any cuts in first quarter payout expectations so the short term return horizon should be quite reasonable. It is not difficult to foresee some judicious buying of stock in the days before the ex-div date on some of the higher yielding stocks.

British gas have in this vein, upped their dividend by 30% this morning but it must be admitted that, for a utility, this is from a very low level indeed and is still covered over five times by profits.

The Fx markets turned Euro bearish yesterday after the hawkish ECB sentiment took a more dovish tone. We can now look at a scenario of trying to pick which of the major currencies is the most weak rather than trying to pick one that is strong. Aside from the Swiss Franc (which is only a major for investment reasons), the other four all have their problems and very few virtues. As money piles up in the emerging and energy producing nations, mainly in a one-way flow from the more mature economies, we may now be looking at the beginning of a long term sea change on economic power.

Precious metals managed to shake off the falls of Tuesday and put in a stonking performance to recover much of the losses. Gold is up three at 903.0-903.5 and Silver back over 16.50 at 16.61-16.64. The battle for Gold around the 900 level is becoming quite frantic with big swings on an almost daily basis.

Oil has given up on 90 dollars once again with the March Brent contract now at 87.72-87.77, and we have that rare (but usually bearish signal) as the price of Nymex crude is under Brent. Dealers will be watching for a close underneath the 86.20 level in Brent, as this would mean a break of the support line from November and December. We have bounced off this several times, and whilst it holds, the bulls should still retain the upper hand. It must be said though, that we are now a considerable distance from the $100 level and the pressure seems to be building for a return to more normal levels.