Will 2008 be worse?

I hope you all had a peaceful and restful Christmas holiday I am back in the office today Thursday December 27th. One of the things that really irk me around this time of year is the relentless advertising by companies to buy, buy,and buy most of the times things that you really don't want. Christmas has become a huge consumer monster where is it said you must buy enough food and drink to feed the five thousand, OK if you have a large family you can buy in bulk within reason but the constant rantings by Tesco, Morrison, Marks & Spencers to buy more food (that ends up in the bin) is nonsense. Also the sales and mother of all sales and it's not even new year. People are behaving like sheep no need to panic the retailers already have a plan to write down stock from previous sales that did not sell then entice you with "70% OFF" then folk who already are on tight budgets extend themselves even more believing they have scooped a bargain when in reality they have not and curse themselves for spending the rent or mortgage money. I have news don't believe the hype the pain in the banking and housing markets are real we are living beyond our means and have to pay for all that reckless spending. Debt charities are gearing up for the calls around overspending and debt. January is a bleak time with credit card bills, missed mortgage and rent payments simply because people want to enjoy themselves during the festive season and ignore responsibilities. Banks are now rejecting 40-50% of all credit card applications, interest rates have also gone up for credit card debts as people struggle with back busting mortgage payments. The sad thing about all this consumerism is that over half the gifts are not wanted, not planned and will probably end up in the bin or be recycled. Most are impulse buys, so don't be like sheep and don't believe the hype.

More bad news ahead in 2008 for Merrill Lynch, Citigroup and banks in general as the losses keep mounting. However should we feel sorry for the banks? Not really they created this mess and produced "Junk Products" put simply they are stuck with their own products they can't shift them and now have to write them off. This credit crunch will probably linger for a while as Merrill will probably write down a further $4-7bn in Q4 ,and Citi billions more. "It will be a couple of quarters before the current credit crisis is fully digested by the markets," the analyst, William Tanona, wrote on Thursday.

The analyst issued his forecast after banks said they would write off tens of billions of dollars of debt this quarter, as rising mortgage and credit losses led investors to shun debt once thought safe but now deemed risky. Citigroup replaced Chief Executive Charles Prince with Vikram Pandit, while Merrill replaced Chief Executive Stanley O'Neal with John Thain.
Citigroup, Merrill and JPMorgan did not immediately return calls seeking comment.
Tanona, who rates Citigroup "sell," said the largest U.S. bank may have to write off $18.7 billion this quarter for collateralized debt obligations. That's up from his prior $11 billion forecast, and higher than Citigroup's $8 billion to $11 billion forecast. Tanona boosted his forecast for the bank's fourth-quarter loss to $1.33 per share from 52 cents.
The analyst also said Citigroup may in 2008 cut its 54-cents-per-share quarterly dividend, equal to a 7.1 percent yield, to help raise or preserve another $5 billion to $10 billion of capital. In November, Citigroup shored up capital by selling a $7.5 billion stake to Abu Dhabi's government.

Tanona said Merrill, rated "neutral," may write off $11.5 billion for CDOs this quarter, up from his prior $6 billion forecast, as Thain tries to clean up problems now rather than let them fester in 2008. The analyst expects a fourth-quarter loss of $7.00 per share, up from his prior $1.50 forecast.

Brad Hintz, a Sanford C. Bernstein & Co analyst, separately on Thursday predicted a $10 billion fourth-quarter write-off at Merrill, leading to a $5.10 per share quarterly loss.

So my prediction for 2008 is more of the same as in 2007 but worse, whatever is happening cannot be stopped these things have to happen no matter how the Fed or BOE tinker a lot of these happening were foretold. We are after all my friends living in the last days of earth's history. Take sometime out and reflect and look at the problems we are seeing when has it ever been this bad?

As I write we are hearing that Benazir Bhutto has been killed by injuries from a bomb blast, what now Pakistan? Also bear in mind we have a election in America in 2008 that will be very important for the world also the candidates. Will we have a woman president or the first black president of the USA? whatever happens it will centre around the economy, immigration, the war on terror and America's standing in the world that will have a knock on effect for all of us as my grandad use to say "Saddle Up" we are in for a rough ride.

On closing those of us who have seen the movie "Minority Report" where a person is arrested before they commit the crime take notice where in the film identification was checked by a series of Iris scans against a database, the FBI have announced they have cameras that can scan one's Iris from 15 feet away also facial recognition, true they are in the process of building the world's largest bio metric database, whatever next?

Morgan Stanley bailed out by Beijing

Morgan Stanley yesterday announced $9.4billion of write downs predominantly from mortgage related exposure. The loss of $9.4bn in the first quarter is the first in the bank’s 73 year old history. The write down took the bank to a $3.5bn dollar fourth quarter loss and was so severe that the bank was forced to agree a $5billion cash injection from the Chinese Government to prop up its capital base.
In exchange for $5bn from China Investment Corp (CIC), China’s sovereign wealth fund, CIC will get, says Tom Stevenson in The Telegraph, "a 9% coupon on convertible shares that will give it a 10% stake in the bank within three years." So in other words, in exchange for $5bn now, Morgan Stanley will pay China $450m a year for the next three years, after which the Chinese government will own one-tenth of the bank. Morgan Stanley’s market cap this morning was around $53bn, even after the shares have fallen more than 25% since the start of this year, So that doesn’t look a bad deal at all for the Chinese.
So as China and the Arab states diversify their Dollar holdings we have seen over the past months Banks in particular receiving huge cash injections as the credit crunch continues more of these institutions will have no other method of attracting this money and at times may be forced to go cap in hand. Who said America was not for sale?

Below are some institutions who have received foreign investment. I have named the banks,investors, amount invested and stake in the bank as a percentage.

Morgan Stanley- China Investment Corp $5bn 9.9% stake
Barclays- China Dev Bank $4.4bn 5.2% stake
Blackstone- China Investment Corp $3bn 9.4% stake
Fortis- Ping An Insurance $2.6bn 4.18%stake
UBS- Singapore Invest Corp $11.2bn 11.5%stake
Citigroup- Abu Dhabi Invest Auth $7.5bn 4.9%stake
Standard Chart -Temasek Holdings $4bn+ 15.3%stake
Carlyle Group- Mubadala (Abu Dhabi) $1.35bn 7.5%stake
Standard Chart- Istithmar (Dubai) $1bn 2.7%stake
HSBC- Dubai International "Substantial stake"

Should we be worried about foreign governments buying our companies?
This does all raise a difficult question though. How important is it that foreign governments are gaining increasing control of key assets across the world?
It’s easy to get sidetracked on this topic - on the one hand, we pride ourselves on our free and open markets. On the other, should we be worried about foreigners controlling our companies and the jobs that result from them?But really, it’s not that difficult. As other commentators have pointed out, we learned through a long and painful process in this country that governments are not great at running anything. It’s something that some people are still learning – most notably anyone who still supports the idea that the government should be allowed to build a national ID database. If we don’t trust our own government to run companies efficiently, then it’s unlikely that your average foreign government is going to run things any better. And more to the point, while we can kick our own government out (eventually), we have no control over the make-up or in general, the actions of a foreign power. This isn’t meant to be scaremongering jingoism. The point is that through our ill-considered economic policy of "spend yourself rich", the US and the UK in particular now find ourselves in no position to negotiate when wealthy foreign governments want to cherry-pick our assets. As thousands of homeowners are about to find out, it’s never a good idea to be a forced seller. You place yourself at the mercy of the buyer, which is never a good position to be in, regardless of how benign the buyer’s motivations are. At best, you’ll get a low-ball offer - at worst you’ll get completely shafted.Let’s hope that China and all the other sovereign wealth funds are feeling benevolent when they start running the slide-rules over the rest of the West’s family silver.

Credit Crunch Still Biting:
Citigroup have failed to secure $10billion in financing for Vladimir Potanin, the Russian oligarch, because of turmoil in the credit markets. Also Liverpool FC have had to cutback on more ambitious plans for their new development in Stanley Park the problems in securing £300million for the new stadium have forced the owners Hicks and Gillette to scale back plans.

Sterling due for correction:
The Bank of England have signalled that they will cut interest rates next month due to better than expected inflation figures. As the economy slows and the Credit crunch bites the already fragile housing and retail sector hope that lower rates will kick start the flagging economy but with forecasts showing 45,000 homes to be repossessed next year home owners are hoping for some sort of relief. Sterling will go lower based on the BOE’s intention for the first time in three months it dipped below $2.00 and was trading at approx 1.9869 expect it to fall lower.

Central Banks act on meltdown fear

Mid October 2007 when the central bank and governors and finance minsisters from the G7 countries met in Washington they thought the worse of the global credit crunch might be over, far from it we are now in mid December and the central banks have been forced to act. Yesterday around 2pm GMT The Bank of England, Federal Reserve, The European central bank, Bank of Canada and the Swiss central bank announced they were combining forces to release into respective economies $100bn. This release of money via auctions is to prevent the worsening credit crunch derailing the world economy. Put simply commercial banks are not lending to each other due to the losses from the sub-prime fall out, confidence has been sapped as banks are hoarding cash mainly to balance their books for the end of year. Libor and Interbank interest rates are at 17 year highs as continual losses are announced by banks. Just this week UBS announced a further $11bn writedown on loans and with others due to report Q4 results who knows what lurks around the corner.

Whilst the injection of cash from the Central banks are seen as a good thing we can't simply think this alone will fix the credit crunch. The following needs to happen:

Libor-The London Interbank Offered Rate needs to come down this is the rate that banks lend to each other and for the past three months it has been very high.

The billion-pound write downs by banks and their holdings of complex trading instruments coming to a halt. This will mean that the value of collateralised debt obligations (CDO's) which contain many of the sub prime mortgages in the US will have stabilised.

Debt markets starting to open up, with companies again able to turn to the financial markets to raise fresh money in the form of long-term debt and short term commercial paper.

Securitisations of the type which got Northern Rock into trouble once again emerging.

Just how the markets react over the coming days and weeks are crucial to this ploy by the Central banks working. Just late tonight the Libor rate has not reacted to the announcement by the Central banks but these are early days the Bank Of England's first auction is the 18th of December.

Normal services will only resume when these multi-billion losses diminish.

The threat of higher inflation is a concern but the Central banks really have to hope the credit crunch does not take hold as this will be a global problem with slower growth and recession.

As discussed in previous blogs the Federal Reserve cut interest rates by 0.25% basis points both the Funds rate and Discount rate were cut, however the markets expected more and we had a huge fall on share prices as clearly markets were disappointed. Many had expected a 0.50% cut but Bernanke and the Fed are worried about the problems of inflation so rates will remain at 4.25% for the time being. The main worry however is the economic slowdown, and the falling dollar as 2008 will probably herald what we have all been speculating a Recession. American investors hoped the rate cut would have eased fears around the housing slump and the worsening credit squeeze as banks are still reluctant to lend to each other many are sitting on huge reserves but with the discount rate above the fund rate for interbank lending some banks are seeking alternative sources of liquidity. The fact to remember is the Fed does not have the cure to the markets ills, they can only do so much "Monetary Policy" is the key role of the Fed and whilst the markets had priced in a rate cut Bernanke must get the balance right.

The fall out continues from the Sub-prime crisis as UBS this week announced another write down of $10bn taking the total lost by the bank to $13.5bn. This after UBS telling us in Q3 they did not see anymore significant losses. So what doe this mean? Well many banks will now be reviewing and looking at the book value of these CDO's and SIV's they have on their books. Sad to say we have not even scratched the surface of sub-prime losses expect more revelations over the coming weeks and months. Banks will look to source other cash revenues just as Citigroup went cap in had to Abu Dhabi, UBS have received a cash injection of $9.7bn with the bulk of the money coming from the Singapore Government and the Oman Government pumping in $1.75bn. It's further evidence of the transfer of financial power from the western economies to the great cash generating economies of Asia, Russia and the Middle East - which are able to dictate the terms on which they prop up important institutions,"

This coming on the worries by CIBC banking analyst (Meredith Whitney) that Citigroup is in worse shape than thought. Whitney believes that Citigroup needs to raise $30 billion of capital, and may have to do things like sell assets, issue new stock or cut its dividend, which pays out $2.7 billion of cash each quarter. My major worries is that Citigroup will announce huge losses, probably they should under new boss Vikram Pandit and then concentrate on getting the bank back to profit. Pandit is a ex-Morgan Stanley who left the bank to set up "Old Lane Partners" a hedge fund that he later sold to Citigroup for $800m. Note that Pandit's management team at Citigroup will consist of four ex-bankers from Morgan Stanley. We all await Q4 losses from Citigroup with abated breath who says another $11bn?

Losses announced by banks thus far look like this: (As of 11th December 2007- Freddie Mac announced further losses of $10-12bn)

UBS: $13.5bn
Citigroup: $11bn
Merrill Lynch: $8bn
Morgan Stanley $3.7bn
HSBC: $3.4bn
Bear Stearns: $3.2bn
Deutsche Bank: $3.2bn
Bank of America: $3bn
Barclays: $2.6bn
Royal Bank of Scotland: $2.6bn
Freddie Mac: $2bn
Credit Suisse: $1bn
Wachovia: $1.1bn
IKB: $1bn
Source: Company reports

As the housing market in the UK starts to splutter under the credit crunch it will become harder for those looking to enter the housing market also those who wish to re-mortgage. 1.4 million UK house owners who have fixed rate mortgages that re-set in 2008 will see payments rise on average £200, forecasts next year for repossessions are for 45,000 homes.

So what stocks and funds can you invest in during this crisis, I will look at giving some tips next time.

Can Bernanke cut rates again?

December 11th 2007 the FOMC (Federal Reserve) meet for the last time this year and will decide if they can cut interest rates again to stimlate the ailing American economy. We must bear in mind that these rate cuts take time to affect the economy in some cases 12-18 months we call this "lag" So why are the Americans considering cutting rates and the UK watching the situation before taking action? Well Ben Bernanke and the Fed are more concerned on economic growth and will do anything within reason to stave of recession. The Bank Of England however are more concerned about inflation, remember target 2.0 from my previous post? The UK inflation rate is currently 2.1% with Merv King's guidelines, however with rising oil prices and food prices the threat of inflation going higher is a reality the Bank of England are worried about, so although the UK economy is slowing in particular the housing market many expect The BOE to cut rates if at all in early 2008. Now this could all change should we really have a sluggish run up to Christmas spending, however last weekend's spending spree in and around Oxford street saw reported sales of £100 million quid not bad this had high street retailers smiling with all the gloom of tighter credit, a very wet english summer and some retailers stuck with very high stock levels this just might be what they need. But I hate to be the party pooper bear in mind the mortgage debt levels, credit card debt, housing loan applications at a real low will people really be spending? I think so then the real pain comes in January 2008 when the excess needs to be paid off. I am giving the gift of cash this year for I believe the real bargains will be early to late January, many stores will slash prices for December 26th so my advice wait and grab yourself a real bargain don't be like sheep timing is everything.

Back to Bernanke and the rate cut my concern will be the fall of the dollar already at all time lows it will take a battering and probably hasten massive sell offs as investors already fed up with poor returns look else where. The other fall out from those holding dollar assests and curencies pegged to the dollar is inflation and recession, America can and will export recession no ifs or buts. You ask most economists some say recession has arrived, others state it is a real possibility and Bernanke knows he is in a very very tight spot.

Do yourself a favour and buy this book "The Dollar Crisis causes, consequences and cures" written by Richard Duncan a very informative book and worth every penny, you see why we are all in this mess dealing with the "Gold Standard" Bretton Woods and the Dollar as the reserve currency of the world.

How many of us have heard about Sultan Ahmed Bin Sulayem? He is from Dubai and runs a Dubai fund that have bought The QE2 complete with Tilbury and Southampton docks where the cruise liner berths. Barneys the upmarket department store in New York, two buildings on Park Avenue, and the nearby W Hotel in Manhatta: a share of London based Standard Chartered Bank;beaches across Africa from Zanzibar to Cape Town and half of the Las Vegas Strip. Such is the spending power of Arab and Chinese funds they can buy whatever they want. Only this week Sheihk Ahmed bin Zayed managing director of Abu Dhabi's sovereign wealth fund dipped into his top draw and injected $7.5bn dollars of much needed funds to Citigroup the world's largest bank. His investment will earn around 10% annually, 4.9% of Citigroup convertible stock and the bank stumps up 11% interest rate costs this shows just how desperate the bank is to get its hands on new capital. Markets in turmoil yes but Citigroup were in trouble some time ago. Expect these funds to take equity posistions in banks that need capital and already squeezed by the credit crunch. Morgan Stanley estimates that the worlds funds hold some $2.5 trillion dollars in assets and are adding $500 billion every year. The days of America as a financial superpower are over.

More pain at Citigroup

The problems at Citigroup persist with CNBC reporting massive job losses planned at the troubled bank. Analysts are predicting worst case scenario 45,000 jobs to be shed by Citigroup. Citigroup employ close on 320,000 staff world wide the job losses come on reported forecasted write downs in the fourth quarter due to credit-related losses. Citi wrote down $6.5billion in the 3rd quarter with a further $11bn expected in Q4. This clearly shows the sub-prime crisis is far from over. Bear in mind Citigroup are not alone with HSBC today shoring up two structured investment vehicles (SIV) which they manage to the tune of £17bn pounds ($35bn) by doing so the bank admitted they cannot see an end to the SIV funding crisis.

Some weeks ago I mentioned that Citigroup were in trouble added to this they would shed jobs world wide. More pain is around the corner as bank losses announced are just the tip of the iceberg. Only a small fraction of the likely losses associated with the US subprime market have been declared by the financial institutions expect more in 2008 for the problems associated with housing has spread to auto loans, credit cards and insurance. Some markets are factoring in another six months of uncertainty, added to this oil prices. UBS reckon $480bn of losses while Goldman Sachs warned we are headed for recession. For us in the UK we should pay attention to christmas retail figures and stirrings coming from the Bank of England will they cut interest rates early 2008?

More flexing of Middle Eastern muscle as Abu Dhabi buy a 8% stake of chip maker Advanced Micro Devices (AMD). The Mubadala Development Company pumped in $622 million to the troubled chip maker who have losses currently this year running at $1.6bn. This shows just how the Middle East is buying up chunks of American business with over $10bn invested alone this year. China, Saudi Arabia and other Middle Eastern and Asian countries have set up such funds, which control an estimated $2.5 trillion in assets. Is America for Sale?

Gold prices rose, while the dollar fell against other major currencies. Gold now trading in the UK at £399 a oz.

Just more bad news today as investors were unnerved by another series of announcements that pointed to continuing problems in the credit markets, the result of home loan debt going bad under the weight of a faltering housing market. How far will the Dollar go?

The return of Stagflation?

The Bank of England's monetary policy committee concern is to keep inflation within a target range they call it "Target 2.0" To keep within the target set they have used interest rates currently standing at 5.75%, but over the past months we have had several shocks to the system namely the subprime fallout,credit crunch and oil prices. All have led to a economic slowdown in the UK and America so kickstarting a sluggish economy would probably mean a drop in interest rates right? So what about the inflationary pressures caused by high food price and fuel prices what about target 2.0? The problem is as inflation rises the MPC won't be able to cut interest rates as some have forecasted last week. We may be witnessing something unseen since the 1970's Stagflation the combination of stagnant economic growth and inflation do we need to worry? Yes We have a huge surge in food prices, which includes staples such as bread, milk, eggs food prices are moving faster since the 1970's and will become a significant item in household budgets. OPEC have recently met and have agreed not to increase oil production with prices still around the $100 it is us the consumer who will bear the ultimate price increases.Then Sterling at a 26 year high against the dollar but weak against a other currencies notably the euro. Sterling needs to lose some ground against the dollar and it will no longer provide the insulation against global prices that have been such a feature of recent times. A falling pound always means rising inflation. Sadly with rising council tax bills, rises in transport costs, utility bills we should expect higher inflation added to this an economic slowdown which means stagflation. What does mean to the US economy? Well inflation may be up to 5% by year's end the plunging dollar and GDP shrinking in the fourth quarter leaves Bernanke no room for those rate cuts to shore up the ailing economy leaving us with a painful headache that will take us into 2008 and beyond.

The deflating dollar is in grave danger of losing its pole position as the world's reserve currency. During OPEC's recently concluded meeting the members discussed the possibility of ditching the dollar from the basis of oil trades. Saudi Arabia objected as doing so would have triggered a run on the dollar. As the Bush Administration sees the balance of payments fall due to the weakened dollar it only makes up 12% of GDP, 70% of US GDP is consumer spending. My concern is how much longer will those holding large reserves of US assets hold out.

Conrad Black will now be sentenced December 10th 2007 instead of November 30th. Black who was found guilty on three counts of fraud and one of obstruction of justice faces up to 24 years in jail.

Do we really believe Fed boss Ben Bernanke's forecast for the US economy? His forecast is of moderate, but positive growth not recession. However they must stop tinkering with official stats and just admit the US is in recession. Bob Herbert from the New York put it this way,

"The Fed must wake up and smell the recession"

Sub-prime to Credit Crunch

Those of you who have been reading my blog since September have read my comments on the Recession about to take hold in the United States and the problems it poses to the rest of the global economy. Further proof was announced today that US retail sales and producer price figures have pointed to weakening demand. What the Federal Reserve and financial markets want to see is confidence in consumer spending. Well consumers are down at the moment, high gas prices, mortgage problems, car payment arrears, credit card arrears, threat of job losses due to economic slowdown. Add to this the never ending write downs from the banks and we see no end in sight to the US sub-prime crisis. By the way who actually are these sub-prime defaulters? The experts would have you believe they are African American and Hispanics on low salaries this could not be farther from the truth many of these sub-prime loans were sold to White lenders on good incomes living in surburbia but we never hear that. Congressional reports suggest that over two million homes financed by subprime loans will go into foreclosure over the next 18 months. As Sub-prime turns to credit crunch one in ten Britains have had a credit card application turned down added to this 125 separate fee and rate increases in the past two months. Rejected mortgage applications are up 60% in 2007, confidence has been knocked out of turbulent markets and housing sales. As reported in the Independent "the bankers pain will be shared with us all"

We are now in the banking reporting season just before Christmas and many experts expect these losses to continue Barclays today announced a write down of £1.3bn caused by sub-prime however many believe we are being duped by Barclays and they are drip feeding losses with much more hidden. Remember Barclays were supposed to report on November 27th why? Maybe to silence critics and halt a decline in share price I believe we have more to come from Barclays watch this space. Also RBS (Royal Bank Of Scootland) are due to report around December 3rd or 6th they will probably announce much earlier.

The consumer is in trouble over extended and in a midst of a major housing slump the worst since the great depression as announced today by Fells Fargo bank. 70% of the US GDP is made up of consumer spending and with energy prices up and food prices it will be a tight christmas on both sides of the Atlantic. Could the Grinch get Christmas? We are all in the midst of a credit crisis.

The dollar gained some ground today against sterling as UK retailers reported weak retail sales. Check this out why are Currys having a major sale in November weeks ahead of Christmas check the ads and see the bargains as sales end November 22nd, trust me wait until December 26th and you'll get more than a bargain our high street stores are over stocked with goods they can't shift throw in the bargains you can get on the internet why bother going to New York? So worried by the slow down the Bank Of England will consider cutting interest rates as early as January 2008 possibly two rate cuts next year but to late to help retailers this side of Christmas. Our Supermarkets will do well although food prices are up but DIY stores and Electrical retailers (Currys) will suffer so do your homework and bag a bargain.

Forecasts are not to rosy especially with the sub-prime debacle, tighter credit and possibly recession so what are my tips? Gold, Silver and commodities as the dollar falls more and more investors are moving towards precious metals. If you can't afford £350 a ounce then you can track gold funds I am looking at Blackrock Merrill Lynch's investment managers they have a decent Gold fund called the Merrill Lynch Gold and general fund you can invest from as little as £50 a month this should be a long term investment ok, call 0800 44 55 22 or email uk.investor@blackrock.com and get some financial advice these are simply my personal choices.

With US elections a year away whoever wins will need to kick start that economy and probably oversee the largest public works program in history. American Infrastructure is crumbling roads, bridges,dams etc. Remember the eight lane 35W bridge in Minnesota that collapsed this summer sadly claiming 13 lives? Well they have identified at least 80 bridges that are in need of repair and much more. Two firms to benefit from the building boom, yes building boom heavy construction which is immune from the housing crash Granite Construction (GVA) they have a string of large bridge projects which will keep them busy for a few years, also check out Insteel Industries (IIIN) providing steel structures to reinforce bridges again do your homework the two companies mentioned trade on the NYSE and Nasdaq.

Good reading material The Economist, FT and Money Week, if you have Cable or Satellite tune in to CNBC and Bloomberg, I am open to questions so drop me a email, emac777@gmail.com

Many bankers are living in a fantasy world, you live in the real world, read and do your research the sub-prime crisis is far from over and the getting worse.

China threatens 'nuclear option' of dollar sales

Some months ago on a steamy Atlanta evening I discussed with David Gilbert the implications if China decided to dump her American assets (currently $1.33 trillion dollars £658bn) it would be the on par with a nuclear bomb being dropped. It was discussed and we agreed it could happen but unlikely, this was just at the start of the sub-prime crisis. Now forward 2.5 months and look at the mess we are all in. Why would China threaten to dump her foreign assets? Partly due to the US's demands that they revalue the Yuan and reduce the huge surplus they hold in trading. The US has looked at and threatened very harsh sanctions to force the Chinese to change policy but this highly unlikely. If China was to dump US holdings It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds. The Chinese have stated they have the power to trigger a massive dollar sell off but it is not in there interest to do this. This from Xia Bin, finance chief at the Development Research Centre .China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.
"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said. It seems the shoe is on the other foot and shows the weakening of America under Bush, economic power has shifted to Asia and the Middle East as reported in this blog over the past weeks. The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June. Whoever wins the Presedential elections next year must deal with a ever expanding Emerging markets economy and get America back on foot starting with an appreciation of the US Dollar. It is not in America's interest to bully China to change course they are in the middle of a boom, and over time this boom will run of steam, just how much time we don't know.

The UK has decided to keep interest rates at 5.75% the major concern inflation. They (the MPC) don't see the time right for a relaxation of interest rates but the rising pound will be cause for concern as it is over valued and affecting tourism and exports. Enjoy these favourable rates whilst you can as a correction will occur probably in the new year when the MPC will again look at interest rates.

Show no mercy for Lord Black ex-head of The Daily Telegraph and Hollinger International he is facing a lengthy jail sentence for fraud and obstruction of justice. He is charged with stealing $80 million from Hollinger International, he pleads not guilty but what is it with these mega rich guys who just want more and more? No morals and no shame, at the end of the day all you are left with is your name and integrity, what's your legacy going to be?

As the value of money erodes where next for investors, Gold, Silver, Oil? The crisis in America is real it does not only affect Americans it affects us all , oil, food prices, jobs, investments, everything we take for granted, but how many of us have paid attention to the shifting powers Russia, China, India, the Far East and the Middle East. Most Americans are blinkered in the view they see these countries but they are now serious players on the international markets. From Healthcare, Financial Bourse's, Airport authorities,etc they are all being sold to foreign companies times are changing and we have top adapt and change or fall further behind.

On closing:Car manufacturer General Motors has recorded its worst ever quarterly loss after taking a $38.6bn (£18.35bn) tax write-down.

GM, which produces cars under the Vauxhall marque in Europe, posted a loss of $39bn in the three months to September as a result of the need to write down deferred tax credits.
The move signifies that GM does not think that it will make significant profits in its automotive or financing operations in the foreseeable future.
The $38.6bn charge falls short of AOL Time Warner's write-downs in 2002 of $54bn in the first quarter and $45.5bn in the fourth quarter relating to the value of its online businesses.

The man who does not read good books has no advantage over the man who can't read them. -Mark Twain

Bernanke must stand up to Wall Street

Hi all,

Its November 5th and Guy Fawkes night, fireworks, bonfires, the air reeking of sulphur yes remembering a fellow who tried to blow up the Houses of Parliament almost 500 years ago.

So Ben Benanke and the team of the Fed cut rates again last Friday by 0.25% something the markets were expecting but did it have the desired affect? The main worry for Benanke is inflation with rising oil prices and commodity prices rising he has to be careful he gets the balance right. The Fed (Bernanke) must not bow to the markets for further interest rate cuts to aggresive and he could tip the economy into a explosive inflationary boom in 2009 and 2010. Why 2009? We must remember "Lag" the time it takes for the economy to react to monetary policy. Monetary policy typically acts on economic activity with a lag of about 18 months and affects inflation another 6 to 12 months later. My major concern is that before the rate cut the growth rate of 3.9 reported for US GDP plus the employment figures made the case for monetary easing less convincing. However the markets had already factored in a rate cut between 0.25% and 0.50%. Bernanke had allowed market expectation to get so one sided that failing a rate cut might have triggered a financial meltdown.

Bernanke must be seen as being in charge, and remove expectations of future rate cuts to do this he must make some hawkish statements underlining the Fed's refusal to protect companies such a Citigroup, and Merrill Lynch from the consequences of their management mistakes. He must make it clear that the Fed will not bail out deliquent banks. Its time for Bernanke to show who is in charge.

Some days ago I wrote about the problems at Citigroup, now its seems Chuck Prince has paid the ultimate price for his banks failings. Previous estimates of $5 billion losses were in reality between $8billion and $11billion to much for the board and investors to bear, this will further spook the markets that more bank losses are being concealed, when will this sub-prime mess end? Eyes are now focused on Bear Stearns and Jim Cayne.

As the US gears up for Thanksgiving Wal-mart has started early sales a sign that they are expecting a difficult holiday season. Christmas shoppers in the UK already feeling the pinch and struggling to pay everyday bills will be forced to finance christmas on credit cards things are expected to get a little bumpy for consumers. Here are some figures to ponder for those on borrowed time, 150,000 fixed-rate mortgages deals are expected to expire this year. 40% of credit cards applications are being turned down by lenders. £1,999 the arrangement fee for the current leading mortgage deals. 43,000 house repossessions in 2008 predicted by the Royal Institute of Chartered Surveyors. Christmas is a time for giving however some of us must remember we don't want a credit hangover come January when the bills are due. The real prudent shoppers will wait until December 26th or early Jan when the real sales begin.

China has produced the world's first trillion dollar company surpassing Exxon. The company PetroChina has a value of £479billion with Exxon worth half of PetroChina at $488bn (£233.6billion) You can buy shares in PetroChina in Shanghai they are trading at 48.62 yuan.

Stan O'Neal: biography and strategy

Read about Stan O'Neal courtesy of the Times online. This article was not written by me credit is given to Tom Bawden in New York.

Stan O’Neal’s ignominious departure from Merrill Lynch comes after a long and distinguished career which saw him rise from the shop floor of General Motors to head one of Wall Street’s most powerful firms.
The 56-year old-grandson of freed slaves got off to a tremendous start at the helm as he began to dismantle the "Mother Merrill" culture, which accepted lower profit margins in place of risk.
Mr O’Neal, who took the top job in 2002, set about cutting costs through mass redundancies at the same time as stepping up the group’s exposure to higher-margin areas such as loans and equity for leveraged buyouts, commodities and risky "sub-prime" mortgages.
Mr O’Neal’s move away from Merrill’s core stock underwriting and money management business into a higher octane group investing more of its own money initially paid significant dividends. The bank’s profits quickly more than doubled to average at more than $5 billion annually between 2003 and 2006 and the share price soared.
In 2006, Merrill made a $7 billion profit investing from its own balance sheet, compared with $2.2 billion in 2002. But the group became increasingly ambitious, hiking up investment in so-called collatorised debt obligations, or pools of bonds largely backed by sub-prime mortgages, from about $1 billion 18 months ago to more than $40 billion.
Those investments were largely responsible for an $8.4 billion writedown, announced last week, which gave Merrill its largest quarterly loss, of $2.24 billion, in its 93-year history.
Some analysts are predicting that Merrill will take a further $4 billion writedown this quarter as the fallout from America’s housing crisis continues to force down the value of these "CDOs".
Adam Compton, an analyst at RCM Investors, said: "A lot of the damage stems from the attempt to change a culture that was inherently against risk – which blew up in its face."
Mr O’Neal grew up in poverty in the Deep South, among the cottonfields of Wedowee, Alabama. A golf fanatic, he had speech training to modify his southern drawl and methodically worked his way up the ranks from the assembly line at General Motors' plant in Doraville, Georgia.
He enrolled on a programme that helped workers attend college and graduated from the General Motors Institute, now Kettering University. From there he won a scholarship to study for an MBA at Harvard Business School which led to a job at GM’s treasurer’s office.
He joined Merrill Lynch in 1986, age 35, working in its junk bond department, which he was heading three years later.
Mr O’Neal’s single-minded determination did not frequently translate into consensus building. It is understood that he often drove through his own agenda, with minimal discussion, in a pattern which culminated in his unsolicited approach to Wachovia this month to see if it might be willing to acquire his firm.
That approach, which came to nothing, is thought to have infuriated the board, not least because it smacked of desperation.
Mr O’Neal also had a habit of cutting long-term staff that were loyal to the group and had a wealth of experience. In one such move he ousted three long-term bond executives – Jeffrey Kronthal, Harry Lengsfield and Doug DeMartin, in July 2006 – three people who might have helped steer Merrill Lynch through its sub-prime woes.
As he contemplates his time at Merrill Lynch, Mr O’Neal may question the wisdom of the strategy he voiced in 2002: "The Mother Merrill, cradle-to-grave thing isn’t possible to do. It’s not even smart to do."

Petrodollar Power

Dear all,

I took a break from updating my blog due to the rapid changes in the financial world in reality I could not keep up and as I write Merrill Lynch have ousted CEO Stan O’Neal due to the bank’s horrendous exposure to the sub-prime crisis writing off an incredible $8.4bn with more to come. Both Merrill Lynch and USB warned of more losses and with Citigroup not exposing true losses I feel we are in for more shocks and senior heads at these banks to go. However don’t shed a tear for these high paid execs O’Neal is reported to walk away with more than $200 million (£97million) in company holdings and retirement benefits. He will be remembered for the biggest losses in the Bank’s history. Market reaction to O’Neal’s departure was shares closed up 1.33 cents at $62.47 as investors’ awaited further news on O’Neal’s successor.

Remember some week ago I wrote about the dollar’s woes? Well the US and the World economy are in for more shock, the dollar is at a 26 year low against sterling (£) with £1 worth $2.066 and rising especially with the Fed undecided on how much to cut this week’s interest rate. I see a further 0.25% cut and more dollar losses, Canadians are having a good time also as the loony is at a 47 year high against the dollar, you may well ask what’s going on, well the Bush administration’s handling of the economy is at the heart of the problem all this free spending, the funding of the Iraq war, military hardware procurement a government living beyond its means. If it was an individual he would be declared bankrupt. Now the most worrying aspects of this is the rise of economic strength in China, the Far East and the Middle east. The Middle East with all that oil revenue will now begin to shape economic events they will challenge the industrial west. This challenge will be led by six states of the Gulf, Saudi Arabia, The UAE, Kuwait, Qatar, Oman and Bahrain they have enjoyed the fastest and prolonged expansion for almost 30 years. The driving force is Oil from $24 a barrel in 2002 to $93 a barrel in 2007. Over the past 5 years GDP has risen to a heady 5.6 percent and is still expected to expand faster to around 5.9 per cent in 2008.
The region’s annual GDP is $735billion and they have the upper hand with huge oil reserves and demand from USA, Europe India and China they will seek to change world economics. The bad news for the USA is that these states are already disposing of dollar assets; Kuwait has already abandoned its dollar currency peg. What does this mean? Well as the dollar continues to weaken hundreds and billions of dollars will flow out of the Gulf and seek a safe haven in Gold, other commodities and the Euro. The Gulf States will then be able to acquire corporate stakes in the UK and the rest of Europe this would transform these Arab states from a petrodollar power into a global hub betting its future on investment, trade and services.

Who say’s money does not talk? King Abdullah bin Abdul Aziz al Saud the custodian of Saudi Arabia flew into London this week the first time in 20 years. His entourage a whopping 830 people on five 747’s
The British government has long been moaning about Saudi Arabia’s human rights record but with the king in town they can forget all that a sell him fighter warplanes, weapons and much more in deal worth millions of pounds and British jobs.

On closing just how many of us are paying attention to all this global problems? Wars rumours of wars, financial meltdown, this message was taken from a trader’s chat room I visit every now and again to see how they see the markets.

by fletchrrr 14 hours ago
The world is also coming to an end sooner than one would think.
On that note, bye for now.
E-Money

BoA losses "Unacceptable"

It seems the loan crisis just won't go away. Bank of America's 3rd quarter profits virtually wiped out today as the sub-prime mortgage crisis extended across all credit markets.Just how much was lost? Well lets just say profits dived to $100 million from $1.43billion. BoA lost $607million in trading losses and a further $527million from structured products asset and mortgaged backed securities. This was worse than expected how much more can the banking industry take? Wamu also had a bad day the Seattle based bank announced it boosted the amount it set aside for loan and lease losses to $967 million, up from $166 million last year, and $372 million in the second quarter. It also increased provisions for loan losses to $323 million from $229 million in the second quarter.

Added to the bad news today the dollar fell again against the euro due to a jump in weekly jobless claims, investors now hoping a further interest cut is in the offing?
The euro was trading at $1.4296, up from $1.4167 late Wednesday. Sterling also was up against the dollar trading at $2.0444 from $2.0379 late Wednesday.
The Fed's policy committee will meet on Oct. 30-31

Look out for Porsche taking over Volkswagen later this month. VW has been in the doldrums for a while now and doing quite badly in the US market especially with the techno -savvy Phaeton other brands under VW are Bugatti, Bentley and Lamborghini. Porsche believe they can turn around VW by closing loss mmarking US plants, and looking at VW's generous wage bill, also non performing luxury brands as mentioned above. VW won't go quietly but the takeover is a question of when, not if.

What's up with oil prices?

What's up with oil prices?

What’s going on? Oil prices upwards of $85 per barrel and some experts predicting $100 per barrel by year’s end crazy but possibly true. So what’s fuelling (pardon the pun) the dramatic rise in oil prices? Possible conflict between Turkey and Kurds in northern Iraq and as of this evening Turkish soldiers were on the border ready to enter and ready to crush Kurdish rebels based there. The historical enmity between the two go back a century, with the Americans not understanding the feud they are worried that a possible incursion would wreck stability in northern Iraq. Also bear in mind a lot of oil production is also based in the north. It does not take much these days to spook the markets. A weak dollar, talk of under supply and OPEC knocking hopes of a production rise has seen prices surging. Putting it mildly “supply is not matching demand”. OPEC has suggested it may raise production by 500,000 per day from November but Saudi Arabia the cartel’s leader has remained silent whether to increase production further. So what does that mean for you and I, price increases at the pumps, energy bills going up in the future, sluggish consumer spending that means that 50 inch plasma you promised yourself isn’t happening for now as you now have the extra cost of fuel for transport and heating. The stores are filled with stock they can’t move despite great discounts. Remember I said a consumer led recession some weeks ago? Well I have not seen movement for me to change my mind. If you have not got rid of that gas guzzler or car-pooling or taking alternative transport now’s the time to do it, also hurricane season does not officially end until the end of November so storms are always possible.

Keep an eye on those commodity prices Gold, Silver and black gold are at historical high prices. I know of some financial experts who have bought gold and gold coins to add to portfolios. Here’s a heads up gold was trading at $758.96 per oz, and Silver £373.50 per oz, Brent crude $84.24 per barrel. You can do some homework and check the Chicago markets and see how prices are going for Corn (at a all time high)and other commodities. Don’t just listen to these so called experts on CNBC and other financial shows read for yourself and study the trends. Globally we are not in good shape once you hear that the IMF, World Bank and financial bodies are adjusting growth figures that mean maybe trouble ahead.

We have had it all this summer the sub-prime fallout, Northern Rock and now this. 60% of UK mortgage applications are rejected proof that lenders are tightening lending after years of reckless approvals. This rethink followed warnings from The Bank of England about lending money that buyers can’t repay. The tightening is taking buyers out of the market fuelling a slowdown in price growth.

Over the coming weeks I’ll look at the buy to rent market, US banks and job losses, Bernanke and the ailing dollar.UK housing market the bubble about to burst
Now music watch, check out “Porgy and Bess” the George Gershwin opera re-worked by Miles Davis and Gil Evans one of my all time favourite jazz albums. Lush orchestrations, a wide-range of material between exuberant swingers and tender ballads, and plenty of virtuoso playing by Davis. Any appreciation of Porgy and Bess would be sorely lacking without mentioning Evans’ recasting of “Gone, Gone, Gone” (itself a wonderful performance) into “Gone.” The tune is a showcase for drummer Philly Joe Jones, who performs some unbelievable drum fills in between statements by the orchestra. An alternate take of the tune was added to the 1997 CD reissue illustrating the perfection of Jones’ playing on the master version.
Porgy and Bess is just one of many great albums that Miles Davis recorded over his lifetime. It reaches a higher plateau than most, though, in its way that it can reach the listener on both a musical and emotional level. That the album is still able to do this after almost fifty years is a testament to the rare magic that occurred in a New York studio over four days in the summer of 1958.
Enjoy………

Track listing: The Buzzard Song; Bess, You Is My Woman Now; Gone; Gone, Gone, Gone; Summertime; Oh Bess, Oh Where's My Bess; Prayer (Oh Doctor Jesus); Fisherman, Strawberry and Devil Crab; My Man's Gone Now; It Ain't Necessarily So; Here Come De Honey Man; I Loves You, Porgy; There's A Boat That's Leaving Soon For New York; I Loves You, Porgy (take 1, second version); Gone (take 4)
Personnel: Miles Davis - trumpet, flugelhorn with the Gil Evans Orchestra
Labels: What's up with oil prices? draft by E Money 10:09:00 PM Delete

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Marion I forgive you

I decided to comment on Marion Jones today and the bum-rap she is getting from the press. First Marion did wrong she cheated and that's a no no in my book.She had God given talents and at one stage was the fastest woman on earth no need for drugs, however I don't know what it is with elite athletes they always want more to be bigger, faster, so she resorted to illegal substances. Rumours began to spread and despite denials of wrong doing they would not go away. I believe God spoke to Marion telling her enough is enough come clean and seek my forgiveness, yes you will have to face the shame and the consequences for wrong doing but you will be forgiven that's the price you have to pay.All of us make mistakes but we must remember we have to pay the price for these mistakes. Marion asked for us to find it in us to forgive her for she was dishonest, she also said quite sincerely she asked God to forgive her, you can't ask for anyone bigger than that to forgive you, yes people will point fingers and say I told you so but God is bigger than that. So Marion I forgive you, yes you did wrong, but the hardest thing was to admit you had cheated.

Now back to press they seem to have very selective memories currently in the UK three jockeys are facing trial for throwing 27 races worth millions of pounds, they sold themselves for money, they cheated punters and brought the integrity of the sport of horse racing into dis-repute. Hold on these guys are not being ridiculed in the press, they have not been given the grilling and venom reporting that Marion picked up, why I ask are they not cheats too?

Grey Dank October Day

We are having some grey dank weather at the moment leaving us wondering where the next ray of sunshine will come from. As I pour over more drab economic data where is it all going? Are we headed for a recession in the United States? Will the Fed cut interest rates again in October?

The banks are finally reporting the losses from the sub-prime fall out but I believe they are only telling us what we want to hear. USB AG announced write downs of $3.4bn from sub-prime loans and will post losses of about $690 million but the real problem facing banks will be job losses as the fancy debt packages they hold cannot be sold on furthermore they have dropped in value. USB AG will probably shed 1500 jobs worldwide by January 2008.

Citigroup announced write downs of $1.4bn and a 60% decline in profits for the third quarter losses will be around $600 million. Job losses are also expected at the bank along with Bear Stearns and Merrill Lynch. The centre for Economics and Business research warned up to 5,000 jobs will be shed in the Banking sector due to sub-prime losses. As banks write down these losses it will mean less in bonuses.

The consumer slow down has gathered pace with Ford reporting a sales drop of 21% for the month of September, Toyota slipped slightly as Honda saw gains with the Accord and CR-V. GM said sales were flat but had encouraging figures from the new Cadillac CTS.

Will the Fed cut interest rates in October? I think not Remember the technology crash in 2000? The Fed cut interest rates on 13 separate occasions from 6% right down to 1% this time with rising commodity prices and a strong Chinese economy; they can’t be that aggressive they risk fast rising inflation and an ongoing dollar collapse.

Where to investors run to in times like this? Gold it is at a 28 year high with a ounce costing $ 745.50 demand is rising very fast and I see it going higher, probably I should look at adding it to my pension fund, those of you in the US should consider adding Gold to your 401k plans.

On closing, I read that 317 young women become insolvent everyday in the UK it’s no laughing matter credit cards+ store cards+ women don’t mix who’s to blame? Discuss…………

Dollar weakness major cause of concern.

As I write the US trade deficit stands at $544,839,708,414.77. What does this number represent? The difference between the goods and services Americans sell to foreigners and the goods and services that Americans purchase from foreigners. A trade deficit with one country or in one year is not necessarily worrisome, and according to standard economic theory, will correct itself over time. But the theory has been proved wrong over the last 30 years as the United States has run consistent and increasing trade deficits. The enormous size of the trade deficits over the last several years raises the possibility of a severe international economic crisis should foreigners begin to dump the dollars they hold in world currency markets. The trade deficit is calculated on an annual basis, so the number above was $0.00 on January 1st, 2007.

One way to control trade deficits is to allow your currency to lose value (depreciate) this way your home produced goods (exports) become cheaper to overseas markets and imports from these countries become more expensive at home. However this is a short sighted view and in the case of a foreign country opening up a factory and investing in the United States the profits made in the United States end up in the pockets of foreign capitalists what I am trying to say as the late Earl of Stockton famously said “The longer America runs a trade and current account deficit, the more of its family silver will end up heading abroad” We saw this in the 1980’s when film Studio Columbia Tristar ended up being bought by Sony, we are also seeing middle eastern purchases of the Nasdaq and the major ports of the United states. Japanese dominance in the once American dominated car industry now sees Toyota as number car manufacturer in the US.

So why should be concerned? Periods of sustained dollar decline have never really been happy occasions for the world economy. In the early 1970’s, when the dollar came unstuck following the collapse of Bretton Woods, inflation, exchange rate volatility and commodity price shocks became the major economic challenges, creating a nirvana for speculators but a nightmare for everyone else. In the late 1980’s the dollar’s decline contributed to the stock market crash, Japan’s economic excesses and the depth of the European recession in the 1990’s.
So what awaits us in the future well the half point cut in US interest rates was a gamble by Ben Bernanke the dollar has declined in response to this cut it will fall further as the fall out from the housing market spreads through the rest of the economy. We have seen record car repossessions and now job cuts from the banks that lost billions in sub-prime debt. What we are also seeing is the slow down on the high street, car sales, electrical goods, etc. We could be seeing a consumer led recession, much more woe in the housing markets as mortgages that reset later this year and early next year will lead to more home foreclosures.

We are seeing dollar losses against the Euro, Yen and Sterling, but more alarming is Saudi Arabia not cutting its interest rates inline with the Federal Reserve, signalling that the oil-rich gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East. Saudi Arabia holds a staggering $800bn in US treasuries and what they don’t want is a inflation threat added to the recessionary conditions in the United States. The threat now is global investors will start to shun the US bond markets. Just last week the latest US government data on foreign holdings showed a collapse in purchases of US bonds from $97bn to just $19bn in July, what the US does not want is to be starved of capital inflows to cover its current account deficit expected to reach $850bn this year or 6.5 of GDP. Foreign investors are funding 25pc to 30pc of US credit and they are gradually pulling out.

In a nutshell falling US rates could trigger a reversal yen “carry trade” causing massive flows from the US back to Japan and China.

Bush’s fiscal policies are at the heart of these problems. A policy of a weaker dollar might seem like a solution for the US but the longer term consequences might prove to be quite a lot more painful for all concerned.

E-Money

Money, and Tinkering Club owners

Hi everyone I am back after riding the rough seas last week in Brighton. I now have total respect for the sea and all those who risk life on the high seas. Our team bonding event was let's say an experience.

Now back to the economy and the run up to Christmas which is just a few months away. Apart from the woes of Northern Rock and the sub-prime fallout out retailers are now sending out warnings of a slow down on the high streets. Curry's who are owned by KESA the Anglo-french electrical retailer are very nervous as profits slumped £10 million to £38million, a wet summer and consumer debt woes have been cause for concern however with sterling so strong bargains are plenty, perhaps that trip to New York can now becomes a reality remember your allowance its around £145 before you start paying tax and duties.

The Dollar's problem persist and the half a point cut last week in US interest rates have not helped. The worry is that foreign investors will begin to cut the flow of money into US securities and shift to the oil rich middle east. This is the worst time for the US to be dependent on foreign inflows. The fact is Bush has allowed the dollar to fall to help the trade deficit, the problem long term allows Forex traders and investors to start a run on the dollar. What has happened is the shift in economic power has now moved to China Europe and the Middle east. Just last week oil-enriched investors started buying stakes in the London Stock exchange and the Nasdaq. Dubai bought 28% of the LSE,and 19.99% of the Nasdaq.You can bet the American authorities will take a dim light of this especially after last year'attempt by middle east investors to take over US Ports, this was blocked by congress due to security issues.

UK Banks have started reducing credit card limits and have been turning down new credit card applications as the credit cruch deepens. 500,000 Barclay card holders had limits reduced on concerns of debt and some card holders being stretched. The UK's consumer debt stands at £1.3 trillion pounds add to this the worry of bad debts, the housing slow down, expensive credit lending and consumer confidence.

The rate at which the Bank of England lends to banks stands at 6.75%, 1% above base rates so when they made £10 billion available for the money markets they found no takers. The bank expect recent market developments to reduce significantly lenders capacity to extend corporate credit over the next few months. If companies can't borrow you then have the risk of business confidence being hit also investment and jobs. Look for a cut in the base rate before Christmas.

On closing be careful what you wish for, Roman Abramovich's parting of the ways with head coach Jose Mourinho could come back to bite him in the rear. Why sack your most successful head coach who has won more honours in three years, then what the club did in 100 years.Tinkering moneymen and football don't mix remember Michael Knighton?
The man who claimed he'd received a telepathic message from a UFO saying "Don't be afraid Michael" he kicked out manager Mervyn Day at Carlisle and installed himself as coach. Result? United got relegated to division three, Roman you have been warned....

Personal debt crisis still lingers

OK, Bernanke cut the interest rate today by a full half a point but will it be enough? Lehman Brothers revealing losses of $700million due to the fallout this led to a 3% fall on profits but lower than what the experts expected. Shares rose on the news of the rate cut but the under lining problem still exists debt!!! As these mortgage rates reset in early 2008 it will lead to more turmoil in the housing markets. People just don't have the extra money so that new car, fridge, holiday,Plasma TV will be put on hold, retailers will see a slowdown as I see a consumer led recession. Oil prices up, so gas and heating will go up also air travel. We are in a viscious circle and the Atlantic Hurricane season has not even ended yet. Wheat prices are also up hitting $9bushel so what's really going on? The era of cheap money is coming to a end as the debts mount up as pay rises have not really kept up with the cost of living.

The UK now charges £650 for naturalised residents to file for citizenship it use to be £150, a whopping £500 pound increase, gas prices in the UK are around the $7.50 a gallon added to that the tax burden. The UK economy is built on borrowed money and housing, the baby boomers who lead a life of saving are being replaced by a generation who borrow, and borrow consumer debt is at a worrying £1.3 trillion pounds we are a generation who likes to live beyond our means. The pawnbrokers and Hock shop are seeing a huge increase in money being borrowed as credit becomes harder to get, and the stigma attached to poor people is simply not true a lot of middle class folk are just as likely to hock a wedding ring for cash.

So where do we go next? The Fed and BoE will use lower interest rates as a tool to steady the financial markets and consumer spending with Christmas just 3 months away but with this huge debt hang over don't expect lavish presents this christmas. Try and find a institution that gives a good rate of interest for your hard earned money.

Northern Rocks queues may have abated but this does not alter the fact that public confidence in politicians and bankers is at a low ebb. Banks do go bust, long gone, too is that relationship with the bank and its manager,so people will hoard cash and move money around in the fear that more collapses are near. What we need now is a period of calm Bernanke cutting the rate today goes some way to helping but runs the risk of fueling inflation and recession. On closing in our real world A total of 243,947 foreclosure filings were reported in August, up 115 percent from 113,300 in the same month a year ago.

Northern Rock on the rocks

Northern Rocks fall continues, 60% wiped off share value, £2 billion pounds withdrawn in 2 days the former building society now valued at £1.1 billion pounds. Fear and panic still in the high street as assurances from the Bank of England and chancellor of exchequer ignored by customers of the bank. Added to this the pound tumbles on fears of the economic impact, they could be forced to cut interest rates with the run up to christmas. The credit crunch fallout now hitting the UK financial services sector and not just Northern Rock. The BoE are loking for a suitor for the bank rather than have the bank go under, however any buyer would want assurances that they get access to funds promised to Northern Rock. Lloyds TSB, Royal bank of Scotland and Citibank are said to to be in talks with authorities.

This week marks the US Banks reporting third quarter earnings to the markets and admitting just how much billions of dollars the credit crunch is costing them. Lehman Brothers, Bear Stearns, Goldman Sachs and Morgan Stanley all report this week. Experts predict that the top ten investment banks could see around 40% or $25 billion wiped of profits. The subprime mortgage crisis has also reached motor loans with lenders seeing a rise in late payments and repo levels. Wall Street is worried that the same mortgage borrowers who are falling behind with their home loan repayments will also miss repayments on their car loans. Many of the banks that lent in the mortgage market are also providing loans for cars and facing added exposure to losses. However note it is far easier to repossses a car than a house so looks for a spike in car repossessions. Added to the economy woes is the real threat of an attack on Iran by the United States as reported byFrance's foreign mininster Bernard Kouchner we should prepare for war if a peaceful resolution cannot be found.