Thursday, 8 January 2009
Brown to be bonded for eternity
The Excellent Neil Hume has this over at FT Alphaville. Basically, as we go through this 'rally' (still likely to be bear market, but we'll see) in shares, Bonds become less of a good thing.
Last year, when share prices crashed, people bought bonds. Mainly US ones, but all bonds. Despite them having no yield (i.e. effectively cash) at all. This was very handy for high spending governments that had lost control of their public finances. This includes most of the Western World.
However, it has become obvious that this move in and of itself has been a bubble. All the hot money in the world moves very quickly these days. First half of last year was oil and commodities, then bonds..what next? Previously it was US mortgages and Private Equity. Maybe Shares will get a rally one the back of this move this year.
Anyway, back to the main point. Bonds are not going to be so attractive in 2009. Even Guido is shorting gilts. How Brown and darling must have quivered when even Germany, fiscally responsible Germany, could not get 32% of its latest bond issuance away.
Brown and Darling will have to borrow up to £180 billion this year. Adding a couple of percentage points of interest as a sweetener will decimate UK public finances for a decade.
I don't see anyway out of this trap. He had better call an election before everyone figures out we have a national 'together' mortgage.