Wednesday 19 September 2007

Ride the Bull!

The Bank of England has today decided after all to pump money into the markets.

This is in direct opposition to what it had said and done since the middle of August.

As ND has described so well below, the Bank had supposedly been strong enough to let the markets sort out their own mess.

Northern Rock changed that and it is clear that there has been extreme pressure on the Bank to change course and copy the US and Eurozone in major support for the banks.

Not only in the UK, but the Federal Reserve in the US has followed effectively the same line. A 0.5% cut in US interest rates has been agreed. This will no doubt help to end the credit crunch before Christmas and avoid a recession.

The problem though is that all we are doing is putting off the inevitable recession. Too much money has been lent recklessly and this has to be put right. Merely allowing conditions to continue to encourage this behaviour makes no economic sense.

It makes political sense though, saving the Republicans in the US and stopping Gordon Brown from becoming a lame duck Prime Minister in record quick time.

So what do do? Well with this level of government intervention (currently all those highly paid bankers in London are effectively now state employees working in the public sector!) the only ting to do is ride the Bull. Bank shares will go up and so will the stock market in the short -term. Sure it will all end, increasingly like likely to be in 2009 to 2011 as James Higham has often predicted.

Until then make hay while the sun shines; the night will be much longer then.


Anonymous said...

Of course, while not in any way soliciting financial advice, I'm still curious to know exactly how the ignorant layman can best buy gold, and exactly where on his allotment he should bury it.

Old BE said...

Is the solution to problems caused by loose money yet more loose money?

I doubt it.

At least sensible people now have breathing space to re-evaluate their holdings and positions...

Sackerson said...

Dearieme: I've seen BullionVault plugged by The Daily Reckoning and others - no need to do any digging, they'll hold it for you.

CU: is this why the pound has dropped back from $2.03 to $2.00?

Anonymous said...

Thanks, Sacks. Alas "they'll hold it for you" isn't quite the degree of certainty that a worried layman might seek. "Under the tatties" might be.

Nick Drew said...

Sackers - CU will no doubt give you an authoritative answer: my observation on £/$ is that we are bouncing all over the place, but in a relatively explicable manner:

2.03 to 1.99 (13th - 17th sept) as NR saga unfolds & uncertainty reigns

1.99 to 2.015 (18th) as Fed drops its rate (0.5% was more than was already priced in)

2.015 back down to 2.0 yesterday as the Bank of England performs its elegant, independent back-flip

At least the 'injection of liquidity' is at penal rates. If the Committee bows to more improper pressure, there must be the chance of another downward £ move

(but I don't do forecasts)

Anonymous said...

In my opinion the £ is now way too high against the dollar and it can only be a matter of time before we see a run on the pound that brings it more in line. If this doesn't happen then our trade with the US and other nations that have currencies fairly closely pegged to the dollar will suffer severely. Since that can't happen for any length of time, the pounds will fall. Since the dollar is already falling against gold, buying into gold seems reasonable.

I don't agree that reflating the UK economy is going to work this time around. We have hit the end stops. It is not enough to inject extra debt in the system - you also have to be able to finance the interest on that debt. Can the government spend more? Not withouth raising taxes. Can the consumer spend more? The consumer is already grappling with higher mortgage rates- rates which will be at 8% by the end of the year regardless of the BoE base rate as the interest being given to deposit account holders in the hope of getting more cash is now 6.5%. Can the corporate world spend more? No one wants to lend the corporate world more money for M&A activity and that doesn't help the economy anyway.

It ends here. The base rate could be reduced to 0.5% like in Japan and it wouldn't make any difference.

It is going to take decades of good government and hard work to dig us out of this mess. Are we up for it? Or are we going to take full advantage of Schengen and quit the UK for an easier life in the South of France or Spain?

Whispering Walls said...

I know there's been a lot of cartoons about this but it's amazing that all those people queued patiently without making any threats and didn't insist that NR opened on Sunday. In other countries, branch managers would have been shot!

Anonymous said...

W.W. It's called Britishness, we excel at queueing in orderly lines.

CityUnslicker said...

I have limited understanding of the FX markets; in line with a couple of FX traders I know...

Overall there seems little movement at the moment considering the overall crisis.

The dollar is headed down bigtime though.

Sackerson said...

Anon: I think your point about the inflation race is right. So it will probably affect all currencies of countries that have significant international trade. "Under the tatties" hoards may be part of the solution for individuals.

Or should we borrow money to buy land, relying on inflation to make our payments for us? You might say that 2009 on will be deflationary, but on current form the response will be even faster inflation.

Or will it be time for pallets of Heinz and a rack of Glocks?

Anonymous said...

@Sackerson: Well I have this dream of buying a small-holding in Tenerife, paying cash! Perfect weather all year round so no need to worry about heating, grow your own food and enjoy the "good life"! Might get a little boat so I can do a spot of fishing - I hear the fishing is very good around the Canaries!

Any more doubts about the way the pound should be heading will be dispelled by this Beeb report on the Euro I think:-

So if you don't fancy quitting the rat-race for Tenerife perhaps Gold is an option. You can buy Sovereigns or Kruggerands and hide them under the floorboards!

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