Frustratingly I don’t have time to give it all the usual full on FSD treatment. But here are a few thoughts on the latest dramas:
- HBoS shares have continued falling. They fell 30% this morning - more fall-out from the Lehman business (there are concerns about HBoS’s reliance on wholesale funding. LIBOR, the interest rate at which London private banks lend to each other, hit a seven-year high on Monday night). Will the next act in this production feature Northern Rock-style queues outside branches of Halifax? We shall see...
- Fresh from refusing to guarantee Lehman’s liabilities, the US Fed has turned back into Good Cop. It will lend $85 billion to insurers American International Group (AIG), taking an equity stake in return. The Fed now owns 79.9% of AIG
- Just to confuse things slightly, though, the Fed voted to keep interest rates on hold at 2%. OK, so these are already pretty low. But the decision confounded those who expected recent turmoil would result in further rate slashing.
But the Fed has a dual mandate - unlike the Bank of England it has to take account of economic output. And the Fed’s dual mandate seems to have given it a split personality. Sometimes it is good to confound expectations. To keep everyone guessing. It’s a way for policymakers to retain and exert control.
But there’s a downside. In such volatile markets as these, keeping people guessing fuels uncertainty. As such, it can exacerbate volatility. This week’s news is especially bad if you’re British. That’s because we’re heavily exposed to the global financial sector - as evidence by HBoS’s plight.
So, you won’t be surprised to hear, I’m still very bearish on the pound. Sterling’s weakness looks set to continue.
To find out why - and how you can prepare for it - read my Britain's Going Bust - Again report here.
Until next time
Ben Traynor
Editor
PS I had an interesting conversation with Garry White, our commodities man, at breakfast today. It was about something he calls ‘relocalisation’ (get a snappier label, Garry!). It’s a phenomenon by which more and more firms are sourcing their inputs locally to cut costs. Supermarkets are doing it - buying from local firms to save on transport costs.
Garry’s latest play exploits exactly the same trend - but on a global scale. He’s promised me more details later this week, so keep reading!
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