Every last word of his speech will be analysed and measured up against the previous great presidential opening speeches: those of Kennedy, Roosevelt and Lincoln in particular.
How will Obama rally the world’s most powerful nation and lead it out of recession? How will he tackle the major problems he inherits? These are the answers everybody wants to know…
As investors, we should all be looking at Obama. In the next few days, expect decisive action from the new administration about how it is going to sort out the economy. Expect real timeframes for when the massive bail out will take place. Expect the stock market to react accordingly.
We’ll be looking for ways to play the new opportunities that will undoubtedly arise from a new leader of America. We’ll bring them to you.
In the meantime, there’s another major financial story that you need to focus on. This one is happening right here in the UK and it is going to hit you hard – unless you protect yourself right now.
The other main story in tomorrow’s newspapers
You’ll need to read on beyond the Obama section of your newspaper tomorrow. Only once you get past about page 25, will you come across other news. And when you finally get to the financial pages, one of the most prominent stories will be the hastening death of the pound. The headlines about sterling taking a pounding are sure to be out again.
If you’ve already taken action to protect your wealth from sterling’s demise, you’re doing well. If not, then you should seriously consider it. You see, it looks like there is more danger ahead. It’s all to do with what’s happening in the financial sector – and the extent to which the government might have to once again bail out the banks.
There’s plenty of talk about the government having to take control of one or more banks. If this happens, it has to take responsibility for their liabilities. According to some analysts, including our own Theo Casey, this could ultimately lead to the UK’s credit rating being downgraded in the same way as that of Greece and Spain in the last week.
It’s little wonder, then, that the pound has once again become the whipping boy of the currency markets. Since the start of the week, sterling has fallen from $1.49 to $1.39, a slump of 6.7%. It’s reached the lowest level for seven years against the dollar. Against the mighty Japanese yen, it’s hit a new all-time low of 125.25 and against the euro, sterling fell by it’s biggest daily move in the past month.
The news isn’t good. There is nothing to look forward to that is positive news for the UK or for our currency. This story might not reach the front pages – but you can bet that it will be all over the business section.
Be careful if you’re considering trading the pound on the Forex. After such a massive two-day fall, there is scope for a vicious profit-taking correction. But there’s no doubting that the medium-term trend for sterling is down – and you should seriously consider taking action to protect your investments.
Best regards,
Frank Hemsley
For Fleet Street Daily
P.S. The best way I have seen for UK investors to protect themselves and profit from the demise of their own currency is a very simple investment. You can buy it like you buy a normal share and yet it makes money when the pound falls. Read about it here.
Inflation – it’s still bad and it’s going to get worse
BY THEO CASEY
Everyone has been expecting inflation to fall. Back in December I predicted the opposite. In other words, I said that a falling pound would mean inflation stays a problem for everyone in the UK.
Well, numbers are out today and it appears our little theory proved correct.
While some believed that inflation – the rise in the price of goods and services – was gone, the weak pound broke its fall in the last month. The previous measure of CPI inflation – the value of the goods in your average shopping basket – fell by 0.7%, less than the City was expecting in November.
And in the figures just published for December, inflation was 3.1%. (See the chart below). This is the lowest figure since April, which is good. But City economists were expecting it to be even lower, at just 2.6%. And it came nowhere near that. It’s 0.5% higher than their forecast, which is bad.
January inflation – falling, but not as much as hoped
In fact, the official inflation target is 2.0% and we are too far from this level. The weak pound is cancelling out the falls in food and fuel prices. Despite prices falling across the globe, particularly for oil, our spending power is still poor.
Hopefully, food and non-food retailers will go after each other and cut prices to sub-cost levels. That will help inflation to fall further, but probably only in the short-term.
Unfortunately, as long as the pound is so weak, inflation will remain a problem in the long-term.
The Daily Reckoning – O! Bama!
BY BILL BONNER
Today’s the day... the whole world turns its weary eyes to you.
“Obama’s moment arrives,” says the International Herald Tribune.
“World needs Obama to succeed,” begins an editorial in the Financial Times.
“The Hope of the World,” says one Paris-based magazine... with a photo of Barack and Michelle on the cover.
Never before have so many people counted so much on just one man.
In the torrent of words and pictures are two thoughts: One, a sense of achievement and pride... in that Americans elected the son of an African as their top man. It is thought to mark a major step forward for the whole human race. We have risen above our prejudices... and our past. At least, that’s what they say. Two, there is an expectation... or perhaps only a wish... that this man can somehow keep the world economy from falling apart.
As to the first thought, we have no opinion. We were never able to get into the spirit of racism. In fact, we were suspicious of it. People don’t really care about race; it’s culture that matters. Culturally, Barack Obama is as white as snow. But who cares? Most of the white men elected to America’s highest office were either numbskulls, chiselers or frauds. There’s no reason to think a half-black man will be worse or better.
But as to the second thought, we have a number of opinions... most of which you have suffered already, dear reader.
Here at the Daily Reckoning, we wish Mr. Obama well. But it is not wishes that make people wealthy. It is work, saving, innovation, and luck. And it is not wishes that fix a post-bubble economy... it is a bust. Best to let it happen.
But we are alone in that opinion... as in so many others. Everyone wishes the errors of the bubble years would just go away... that the bust would disappear. Of course, it doesn’t work that way. Instead, the errors of the last boom/bubble period – known as the ‘Great Moderation’ – get passed to the Obama administration along with the keys to the washroom. And now, the whole world looks to the captain of the team... waiting instructions.
And here we turn to the rest of the news. Markets in the US were closed yesterday. But Britain had its worst day in years. And today, Asian markets are trading lower... because of the problems in the banking sector.
“Blue Monday,” the Daily Telegraph calls it. The Royal Bank of Scotland has just reported the biggest loss in British history – 28 billion pounds worth. Its share price lost 67% yesterday – also a record breaker…
To read the Daily Reckoning in full, click here.
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