Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
4.INVESTORS SEDUCED by CNBC and the STOCK CHARTS COMPLETELY MISS the BIG PICTURE! - 10th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22
Crypto Investors Stable Coins TERROR as Terra USD COLLAPSEs towards ZERO, Tether Next! - 11th May 22
INFLATION IS KILLING SILVER - 11th May 22
The Dominant Investing Theme of the Decade - 11th May 22
Is Bitcoin Headed to Zero? - 11th May 22
RECESSION RISKS 2023 - 10th May 22
The Future of the Dollar Seems So Bright It’s Blinding Gold - 10th May 22
Take Advantage When Markets Succumb to Fear - 10th May 22
How to Recognize a Less\ Than Obvious Opportunity (In focus: Corn) - 10th May 22
How to Ensure Financial Stability for Your Family - 10th May 22
The Stocks Stealth BEAR Market - 9th May 22
A Strengthening US Dollar Is A Double-Edged Sword - 9th May 22
Making Wise Investment Decisions - 9th May 22
Ways to legalize a Moving Company - 9th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Northern Rock Bank Run, Broker Recommendations and House Price Crash

Companies / Financial Crash Sep 15, 2007 - 02:38 PM GMT

By: Nadeem_Walayat

Companies Best Financial Markets Analysis ArticleWhilst the run on the Northern Rock Bank continues during weekend openings, the same brokers and the mainstream financial press that were recommending buy and hold on the stock throughout the year are still dishing out advice on what savers and investors should now do, again with a bullish tinge. With every other paragraph containing words such as bid target, despite the fact that there's an ongoing run on the bank and liquidity has dried up in the market place so exactly where the financing will come from is anyone's guess. Additionally it will take many years for the public to gain confidence in the brand name 'Northern Rock', after watching endless news reports of savers lining up at high street branches throughout the UK to withdraw their funds in sheer panic.


The Value of Broker Recommendations

Of 17 brokers / financial press recommendations tracked from the beginning of the year, as far as I am concerned only one got it consistently right on Northern Rock - Citigroup.

Chart Courtesy of BigCharts.com

It is clear that the inbuilt bias towards holding and buying stocks remains, this despite the Enron experience. It is probably a mix of self interest and herd mentality where brokers tend to follow the other brokers most of whom have a bullish bias, unless there is blatantly obvious reasons to be bearish on a stock. Which by and large means that broker recommendations are to all intents and purposes worthless.

Now as I sit here contemplating dipping my investment toes back into the financial sector, which bank should be at the top of my consideration list ? Well, one clearly stands out of the crowd in terms of competence in corporate analysis ;)

UK Banks At Risk

Other big UK banks at risk both with large UK subprime mortgage books and reliant upon money market financing to a significant degree are Bradford and Bingley, Alliance & Leicester and to a much lesser extent HBOS. So be prepared for many more financial sector shocks as the crash in the financial sector continues.

The Continuing Run on Northern Rock Bank

Northern Rock closed on Friday down over £2.00 at £4.38, Northern Rock 30% Share Price Crash . An estimated £2 billion will have been withdrawn by savers by Sunday, which represents 10% of the banks deposits. The Bank of England estimated facility is for £4 billions ( Northern Rock Bank Seeks Emergency Cash From The Bank of England). However the Bank of England has now put their reputation on the line and therefore it is highly conceivable that they would now be prepared to finance the whole £20 billions should it be necessary to do so, as the consequences of a withdrawal of the facility now would result in a catastrophic loss of confidence in the UK financial system. What this means is that the central bank may be more reluctant to bail out other 'smaller' banks due to the example of what is happening to Northern Rock.

The obvious comparison with the United States would be with Countrywide Financial, which has announced over 13,000 job losses and has been forced to borrow billions of dollars as the US Housing bust continues. Therefore the outlook for the 6000 Northern Rock employees and remaining stock holders does not look to bright for the foreseeable future, barring a takeover bid.

Those panicking the most, the savers are protected up to £35k of deposits at 90.5%. But I just cannot see Northern Rock being allowed to go bust!, takeover yes, but bust no. Because if this bank goes bust, then its game over for Britain's financial system as other UK banks follow Northern Rock into financial oblivion. We would be talking about a financial catastrophe that would result in something similar to the 1930's depression, far worse than the recession that is required to get rid of the froth that's built up over the last 10 years in the derivatives and housing market.

Technical Picture for the Stock Price

This is going to have to be an educated guess based on my experience of how a large fundamentally sound stock should behave following a panic driven stock price crash, of which Northern Rock fits the profile. Technically there should be a bounce of 50% of Fridays decline, my guess is that the stock will rally next week towards £5.40, and thereafter move in a trading range of between £5.40 and £4.40, so very volatile.

Once things settle down from the current panic stage, the expectation is for Friday's price gap to be filled, which implies a target of £6.45. After that the fundementals will exert themselves, and given that the UK housing market is now in a bear market, the longer term fundementals do not look too good!

Impact on the UK Housing Market

Late on Friday further news emerged signaling a sharp fall in UK house prices. According to Rightmove's latest survey, UK house prices slumped by 2.8% in September. Rightmove attributed the drop to the implementation of the Home Information Packs which was warned of on 1st May 07 UK Housing Market Heading for a Property Crash .

The outlook for the UK housing market is to now be in a 2 year bear market targeting a drop of 15%,UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth (22nd August 07).

By Nadeem Walayat
(c) Marketoracle.co.uk 2005-07. All rights reserved.

The Market Oracle is a FREE Daily Financial Markets Forecasting & Analysis online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Phil
16 Sep 07, 11:48
Buy Nothern Rock Shares?

Hi Nadeem

So do you think it would be good to buy nothern rock shares on mondays open since they are down at £4.38 ?

Thanks.


Nadeem_Walayat
16 Sep 07, 23:41
Nothern Rock Shares

Well the run on the bank is still continuing, it all depends on how the market opens on monday.

For my guess to be right the bank needs to open up, if it opens down i.e. breaks say £4.30 then likely the selling is not over yet.

I personally would not buy it, there is too much uncertainty at the moment.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in