George Osborne's speech at the Mansion House caused as many headlines in the popular press as it did in the financial press. His decision to start selling RBS shares below the purchase price, making the most headlines. Are taxpayers being short-changed by the sale? A popular view amongst the general public is that they believe, as it was taxpayers money bailing out the banks, they were due for the money to be returned to them in some form. That will not happen by the loss being crystallised.
Sadly the reality is as taxpayers we pay our taxes, and that money can go to a losing cause. At the time, using those funds to ensure the banking system remained viable was a good use of those receipts. The reality is paying tax is not an investment you expect to get a return on, its a levy due to the government for them to do with as they wish. Once you pay tax, the money is no longer yours. The fact that the government can now realise some value and reinvest that money that may go into other areas to create greater returns in some way, could be seen in a positive light.
Equities regained their mojo on Wednesday and Thursday, hopes of a resolution to the Greek crisis as well as a settling down in bond markets helping sentiment. Strategists pointing out as we did on Wednesday that the recent correction in equity markets had been fairly orderly adding to the positive sentiment. Citi stated that in their opinion there was a lack of capitulatory volumes in the cash market. Recent breakdown in cross-asset correlation shows European equities “no longer being solely dictated by positioning in other asset classes”. This combination in their view should herald a recovery in risk assets.
We have maintained that despite the recent sell off, sentiment has remained bearish enough to remain positive on equities, and we still believe this is the case. Those investors who took capital off the table have probably been feeling quite smug at the start of June, as they watched equity and bond prices drift. The volumes have been light on the way down, indicating a lack of selling volume, as equities bounce this would make buying back into the market difficult. Those investors who feared the impact of a Greek wobble, may now secretly welcome it, as they look for opportunities to reinvest.