Friday, 16 November 2007

I'm shorting Jeff Randall

As is probably clear, I'm not a massive fan of business journo Jeff Randall. He's one of the best/worst examples of people who tell a story to fit the facts. Today he is typically rubbish, having a pop at Gordo over the Northern Rock collapse. He goes through the motions of saying that the directors of the bank are to blame for the failure, before going on to explain why the Government have made the situation that much worse.

I just want to focus on one particularly stupid bit:

If either regulators or ministers were caught napping by the speed of the Rock's demise, they should not have been. At the start of the year, the stock market began signalling that the company was in trouble: from a peak of £12.50, its share price halved and then halved again. Short of setting off an air-raid siren, it's hard to see what more the City could have done.

First up, he's being quite dishonest here. It's true that NR's share prices was falling from February onwards, you can see a graph of its movements over the past 6 months here. As you can see it's a slow but steady decline until mid-Sept when the BoE bailout news was broken, at which point the share price understandably went through the floor. So while it is true that "its share price halved and then halved again", the second bit of this happened AFTER the BoE stepped in.

But secondly what about this line?

it's hard to see what more the City could have done

Err.. all the City did was buy and sell shares at various points, which resulted in downwards trend in the share price. Given that the City is supposed to be pretty good at this finance stuff maybe they could have a) spotted the flaws in NR's strategy a lot earlier than the point at which they found out the BoE was involved or b) put out sell recommendations on the stock as a result of concerns or c) used the AGM in April as an opportunity to grill the company or d) warned the regulators that they had concerns.

More broadly, share prices get buffeted around by all kinds of meaningless stuff often with little to do with underlying reality. As someone once said about markets over and under-shooting:

"if you’re too high half the time and too low half the time, I would say that the market is always getting it wrong."

But Jeff has a bit of form here. He is clearly for some inexplicable reason in thrall to analaysts. Here's another anti-Brown bit from a month or so back.

If Brown were a business, City analysts would be issuing "sell" recommendations. He's one to short.

If ever one needed an endorsement of Brown surely this is it? Here, for example, is what one analyst wrote about Northern Rock just before the news broke about its request to the BoE for funding. (It's a "buy" recommendation I think?)

"load up on Northern Rock for your children, your mum, your goldfish"

Finally, the most important issue, which Jeff fails to address, is what else could have been done. Yes the NR situation is very messy. It will be very interesting to see what comes out of the bids for the business, but I suspect the taxpayer is going to be down a few quid. But what was the alternative? Let NR simply fail? His implication is that things could have been handled differently, but what would have the major difference in outcome? The BoE might have acted quicker, but NR would still be a basket case. Which demostrates why he's such a dishonest commentator.

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