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.
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