What to Spread Trade in 2009
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The markets appear to be in no mood to believe anything the banks say. Why should they?
The most stark example of this must be the Lloyds/HBOS tie up. Lloyds effectively paid £9bn in January 2009. The combined value of both banks only a few weeks later was around 6.5bn. Sir Victor Blank’s incomprehensible assertion that the merger was good value for shareholders obviously uses a definition of ‘good value’ not previously known.
The old saying ‘do not throw good money after bad’ would sum up every rights issue made by the financial markets for the last year.
The problem is that we need the banks. It is popular, and easy, to dismiss the banks but they are essential to economic growth. They will be essential to the recovery.
If they are still in such disarray, what should investors be trading? If you day trade, trade CFDs and/or like spread betting, where should you be putting your money?
As Simon Denham of FinancialSpreads, recently stated, “Trading continues to be fast and furious across a wide range of markets with clients trying to ‘pick bottoms’ on an almost daily basis. We are seeing continued buying in banking stocks in defiance of the falls as clients seem unable to believe what is going on.
“Of course, nobody can forecast the final outcome but the fact that you could buy the entire Irish Banking system for a small plate of beans might be a good indication”.
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So trading banking stocks seems to be out for now. In fact, despite the popularity of the new US President, the markets even took Obama’s inauguration as a signal to sell stocks across the board.
On a micro scale the valuations of virtually every asset appears to be low but this is only from the view point of the bubble values of 2006/2007.
An educational tour might be made by viewing the Nikkei/Tokyo land price performance since 1989. An economy with huge trade surpluses, a reasonably stable currency and very low interest rates has seen property and equity values plummet for 20 years.
Compare this to the UK. Similarly appalling budget deficit and banking crisis. The UK seems to be in the same space as Japan in 1989. However the UK is without the manufacturing or modern infrastructure base to help. A sobering outlook.
For now I will stick with spread betting. It is tax free*, you can trade almost anything from UK shares to gold to oil to Euro / Dollar exchange rates to the Dow Jones. It also lets you bet on markets going up or down.
Of course there is a negative to this form of trading. Whilst it is easy and quick to trade, spread bets carry a high level of risk to your money and may not suit all forms of investor.
It’s like the adverts say, “you can lose more than your initial investment so make sure you only speculate with capital that you can afford to lose. Likewise make sure you understand the risks involved and seek independent financial advice where necessary”.
Having said that, in the current environment, the fact that spread betting lets you quickly change your position, both up and down, means that you can take advantage of the markets over short periods of time.
I will also be sticking with small bets to keep my risk down. Volatile markets offer plenty of rewards but they do have a habit of catching you out.
"What to Spread Trade in 2009" last update by R Thomas, 15-Feb-2009
Warning: Financial spread betting carries a high level of risk. You can lose more than your initial investment or stake. Financial spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.
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