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.