It makes you proud to be British! Despite the months of scaremongering "credit crunch" stories, people in Britain are fairly relaxed about the whole thing. A poll by the FT finds that only 23% expect recent market events to have a "major" or "moderate" impact on them.
What is causing us to chew the bedclothes is inflation. Forty percent of us cite "rising prices for food and energy" as our biggest concern — well above other categories. It’s a valid worry. Figures released this morning show that producer prices rose by 6.2% over the year to March. The year-on-year figure for February was 5.9%.
It’s heartening, in a way, that we’re worrying about things that really matter, rather than latching onto the latest media buzz words. Less encouraging is the fact that there’s not a lot Britain can do in the face of this inflation. Raise interest rates? Not likely while the economy flirts with recession.
Globally, we’re not as wealthy as we’d like to be. Britain doesn’t produce all its own food and energy. We need to import it, and the people we buy it from are now charging a higher price. So we need to give up more of our wealth to make those vital purchases.
Food and energy inflation is the mechanism that forces us to do this. Lower output is its consequence, since we’ve sacrificed real resources to buy what we need.
"Inflation and deflation only appear to be ‘at war’ with one another," says Bill Bonner. "Sometimes inflation has the upper hand. Sometimes deflation. But over the next few years they will make common cause in the destruction of wealth in America, Britain and a few other economies."
Let’s look at this another way. Back in the day, Britain led the world. We industrialised first, we had an empire, we sailed off to places we liked the look of, stuck a flag there and said "This is ours now, OK?" It was an approach that worked very well (for us), making Britain the wealthiest country in the world.
Those days are now long gone. Britain’s is now the fifth largest economy in the world, behind the US, Japan, Germany and China. We’ve fallen down the pecking order when it comes to competing for the world’s resources.
For a while, though, that didn’t matter. One of the ways we kept living standards ticking up was by borrowing. Now we’ve maxed out... so in a roundabout way the bursting of the credit bubble is responsible for the sudden pain we’re feeling. Because easy credit anaesthetised us — and now it’s no longer there to soothe us. Reality has kicked in.
What we’re seeing right now is a correction in living standards, which grew at a rate faster than that supported by fundamentals. Higher prices are a mechanism to deliver that correction, as is the slowdown in the economy.
But the "credit crisis" didn’t cause the underlying problems. After all, no-one complained when the credit bubble allowed us to buy things we couldn’t afford. So it’s only right and proper that we don’t whine now the gravy train’s come off the rails.
It’s some small comfort that, as a nation, we appear to acknowledge the "credit crisis" as a symptom, not a cause, of our underlying problems.
GE shares slide 13%
Commodities mogul Garry White is relieved. He told his Smart Commodities readers to dump their General Electric shares earlier this month. He’s very glad he did!
GE announced its results on Friday — and they weren’t good. Earnings per share were 44 cents, compared with a consensus forecast of 51 cents.
"Jeff Immelt should be sacked," says Garry, referring to GE’s chief executive. "The CEO is supposed to keep expectations in line with what’s happening in reality. It’s not his role to just blindly talk up the prospects for his company."
The upshot of GE’s poor showing was a 13% slide in the share price. Looks like Garry dodged a bullet on this one!
What more pain will Q1 earnings bring?
GE’s results were part of that procession of earnings reports and balance sheets known as Q1 earnings season. Later this week it’s the turn of investment banks JP Morgan (Wednesday), Merrill Lynch (Thursday) and Citigroup (Friday).
"Expect further writedowns," says our business analyst Theo Casey. "Citigroup and Merrill Lynch are expected to announce combined losses of around $15 billion."
JP Morgan may offer some rays of sunshine; it’s expected to announce a small profit.
"The European earnings season hasn’t started much better either," says Theo. "Philips, the Dutch industrial firm, has reported a 28% drop in core profits, while Tesco, which reports its full-year earnings tomorrow, will probably consolidate its profits to hide the weak performance of Fresh & Easy, its US subsidiary."
Other companies due to report this week include Debenhams (Tuesday), JJB Sports (Wednesday) and WH Smith (Thursday).
A company bigger than Ukraine?
The dollar’s made a tentative move upwards, buoyed by comments from the great and the good of the G7. It’s caused commodities prices to ease, but Garry’s not worried.
"They’re saying they’re going to try to stop the dollar collapsing," he says. "Good luck!"
Garry reckons commodities is still a sector where fortunes will be made. And he reckons one company he’s following could be about to grow bigger than Ukraine!
Get ready for a tidal wave of petrodollars...
"What we are seeing now is quite probably the greatest transfer of wealth in history — a global realignment of power."
These words came from Manraaj Singh this morning. Working tirelessly in our emerging markets cubbyhole, Manraaj scours the globe for likely-looking profit opportunities.
Today, his eagle-eye is trained on Opec, watching for the oil cartel’s next move.
"There’s a big conference in Rome this weekend between oil producing and consuming countries," he says. Manraaj tells me that Opec have been cutting their supply on the sly... and now their customers aren’t happy.
"They’ll gnash their teeth, but I doubt Opec will back down," he says.
Manraaj reckons a tidal wave of petrodollars is about to hit the global markets. The trick, of course, is working out where it’ll go... and that’s what Manraaj is all about.
He’s put together a portfolio of investments that he expects will soak up those petrodollars like a sponge. Find out where Manraaj reckons the next tide of money is about to hit...
Until tomorrow
Ben Traynor
