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.