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Britain’s top House builder calls top on his market and history suggests you would be wise to take note

By David Scott | Monday 11 September 2017


Nobody rings a bell at the top or bottom of the notoriously cyclical UK housing market, but one operator who has shown impeccable timing over decades was busy selling stock last week. Famously near the top of the last cycle he sold out and left his company only to re-join when it was in the doldrums. This is why it is very important to take note of his actions. Last week Berkeley (BKG) founder Tony Pidgley, sold 750,000 shares to make £26.8m as bosses at Berkeley cashed in more than £40 million of shares as they reached record highs. As the stock hit 3575p, the luxury housing developer’s founder Tony Pidgley, who left school at 15, sold 750,000 to make £26.8 million, while chief executive Rob Perrins sold 500,000 to make £17.8 million. 

The head of Germany's biggest bank has called for Europe's "era of cheap money" to end as price bubbles form. Deutsche Bank Chief John Cryan said that while cheap money has helped countries and banks "emerge from the financial crisis" it is now causing "ever greater upheavals" across a number of areas. “We are now seeing signs of bubbles in more and more parts of the capital market where we wouldn’t have expected them," he said in Frankfurt, noting property prices in advanced economies.

Speaking at a banking conference, Cryan also turned his attention to Germany post-Brexit - arguing the race for Frankfurt to become a top financial centre as a result of the vote had "been won before it even began." While he admitted that cities such as Dublin, Amsterdam and Paris will attract jobs, he argued that "in reality, none of these locations have the structures in place to assume a large portion of the business from London." Cryan said the question is not how many financial companies will establish EU hubs in Frankfurt, but how much business Frankfurt wants.

Since the global financial crisis, the biggest G7 winners have been the Big Six US banks that profited from access to cheap money. They benefitted from central bank purchases of their securities that exaggerated the value of the remaining securities on their books so stopping them from going bust. They used “printed” or electronically conjured up money to stockpile cash and fund buybacks of their own shares and pay themselves dividends on those shares. By producing and distributing artificial money, central bankers distorted reality in global markets and through sheer self-interest multi-national banks were co-conspirators in this sleight of hand. After the Big Six banks passed their latest round of stress tests, they began buying even more of their own shares back and their stock prices rose further.

The largest U.S. bank, JP Morgan Chase, announced its most ambitious program to buy back its own shares since the 2008 crisis, $19.4 billion worth. Citigroup followed suit with a $15.6 billion buy-back plan. The Fed’s thumbs up was just another version of quantitative easing (QE) for the banks. Instead of buying bonds via QE programs, the Fed gave the ok for banks to further speculate in their own stocks, creating more artificiality levitation in the stock market. In all, US banks have disclosed plans to buy back $92.8 billion of their own stock to say thank you to the Fed. According to S&P Dow Jones Indices, “Stock repurchases by financial companies in the S&P 500 rose 10.2% in the first quarter [of 2017] and accounted for 22.2% of all buybacks. More ominous than that was another clear sign that a decade of money-conjuring collusion profited the same banks that caused the last crisis. Thomas Hoenig, the vice-chairman of the U.S. Federal Deposit Insurance Corp. (FDIC), the government agency in charge of guaranteeing people’s deposits wrote that in 2017, U.S. banks used 99% of their net earnings toward purchases of their own stock and paying dividends to shareholders (including themselves). They thus legally manipulated markets openly by pushing up their own share prices up with cheap money forwarded to them by the central bank that is supposed to regulate them.

As of this year, global debt levels stood at 325% GDP, or about $217 trillion. The $14 trillion of assets the G-3 central banks held on their books is equivalent to a staggering 17% of all global GDP. The European Central Bank (ECB), Bank of Japan (BOJ) and Bank of England are still buying collectively $200 billion worth of assets per month. With rates hovering between zero and negative in some countries, there would be little to no room to manoeuvre in the face of another crisis. Thus - another thing has become increasingly clear: Central bankers have demonstrated gross negligence regarding the consequences of their monetarily actions. Since 2008 Savers and pensioners have got close to no interest on their nest eggs. Depositors are paying banks to look after their money through fees that offset negligible interest. Small businesses have to jump through near impossible hoops to get loans for expansion. Wages are stagnant. Ultimately, big banks had played the system perfectly with the central banks helping to fund them. The conclusion to all this high level collusion is that the threat of an even larger economic collapse looms ever closer as stock markets and global debt have been propelled and catapulted ever higher to unsustainable levels by money making madness, by the very guardians of its stability and modernity our Central Banks.

Goldman Sachs has been protected from any serious punishment by its friends in highest offices of government through all recent market corrections. Four out of the last eight US Treasury Secretaries, including the current one, have formerly been on the payroll of Goldman Sachs and three current Federal Reserve Bank presidents are Goldman Sachs alumni. The current president of the European Central Bank and the current head of the Bank of England are both former Goldman Sachs employees. There is nothing wrong with governments employment employing top executives from the private sector; but it is the constant favouritism that results from this revolving door is blatant and objectionable and has led to the worst form of capitalism- that is crony capitalism.

In 2008 when the financial system was imploding most banks were suffering enormous losses, the US government orchestrated very favourable Wall Street bailout deal, of which Goldman was the primary beneficiary. Goldman stood to dollars from its bad investments in insurance giant AIG - which was going bankrupt and because of the bailout Goldman was repaid 100% courtesy of the US taxpayer. In a not so isolated case. Goldman Sachs is deeply embedded in nearly every major western government, and the most important financial markets in the world. So when the bank’s CEO says that financial markets are too expensive, it’s probably time to start paying attention. In the week at the Handelsblatt business conference in Frankfurt, Germany– Goldman Sachs’ CEO told the audience bluntly that world financial markets “have been going up for too long.” And whereas the average length of a ‘bull market,’ in which asset prices rise, is just over 5 years, the current bull market has been going for 8 ½ years and this makes it one of the longest in the history of financial markets

No one has a crystal ball, especially when it comes to financial markets. Not even the CEO of Goldman Sachs. But if those at the top of crony capitalism are telling the world that the market is overheated, you can probably take it as read that they’ve already started selling.
 Stocks are not priced for perfection, they are priced well beyond perfection.

David Scott is an Investment Manager & Market Commentator at Andrews Gwynne

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