Bull Market Or Just Plain Bull?

The Sunday Times and today’s Telegraph are very much trying to talk up the current stock market. But are we calling a new Bull Market too early?

The green shoots of revival are hardly upon us and already there is a bit of a lather about the market. The stock market rally, if you can call it that as it is still some way off its position 12 months ago, is not confined to banking shares, although they are certainly leading the way.

Banks as a sector had to improve when you think about it. After having substantial new capital injected into them and new ownership, they were hardly likely to fall further. Some, though, represented very good bets. Barclays remained aloof to Government intervention and saw its shares hit a 22 year low of just 51p. Now, 450% of ascent later to 279p, people realise that their basic finances were sound and all that talk of having to sell the bank proved unfounded. Of course, over £5bn investment for 31% to Middle-Eastern investors helped, but the strategy looked good. To some extent, why other banks were not forced to do the same thing and save the taxpayer a load of money will forever bewilder us, but why should we care now.

Our investments are on the rise.

RBS, despite having to pay large pensions, has risen some 75% since we bought 73% of it and we will actually own a bit more once the asset protection scheme has washed through. Lloyds, another of our investments, has risen nicely lately with our 43% holding which will rise to 65% shortly. So we should be happy. Not quite popping the champagne corks yet as you have to remember that when we bought 73% of RBS for around £37bn, the bank was worth around £5bn in its entirety according to the stock market. So there is a good long way to go yet before we get our money back.

The best performing bank shares were HSBC, again not requiring our intervention. HSBC suffered a dip but nothing like the others and has risen 58% since its trough amid the knowledge that its funding gap was virtually zero whereas RBS’ was £161bn.

Lots of people have been rubbing their hands as Northern Rock is mooted to be sold later this year for around £2bn. Good news for us investors, I hear you say, as we hold 100% of its shares. Well that price would make it a 33% loss deal for us but we would still be lumbered with around £250bn of toxic assets. In fact, as we gleefully think we are on the mend, the isolated stinking debts of all the banks we have a share in are collectively around £1.3 trillion. So while they may actually earn profits now, it does nothing to bring down our potential liabilities.

So as we digest the bullish feelings of the City elite we all chipped in to save and who are now salivating over making more millions on the bounce at our expense, and notwithstanding the round of results still to come from these banks where there may be some more bad news, let’s get a modicum of perspective. While our pensions may have just recovered a bit, our tax bill is growing nicely. In fact, any upside on those bank profits will go straight into executive bonus packages as we, the taxpayer, forgot to ask for the right to veto them when we bought them.

Champagne all round, the City is back in business, doing what it does best – talking bull and making money.