http://news.bbc.co.uk/1/hi/business/7202645.stm

Crikey! Has a whiff of panic about it doesn't it?

wow indeed


BTW - just to add WOW!

this is big news

Eric Pebble eat your heart out!!

edit - typo

I know it's not strictly anything to do with ni house prices or ni house price crash but indirectly it's a huge happening

It's everything to do with us if the stock markets don't recover from the shock of the announcement:

http://www.livecharts.co.uk/MarketCharts/dow.php
http://finance.yahoo.com/indices?e=sp

oh I don't know about that - a possible scenario:

BoE takes US Lead and lowers IRs (this was never a done deal in my eyes, well at least not until today), we enter a similar situation to post 9/11, FED continues to lower rates, BoE follows due to exports etc. Inflation rises due to increased spending etc etc

OK lots of ifs and maybes, but this rate hike will affect NI via the BoE's response

all IMHO of course


edit - just to say the 'train' that is NI HPs will not alter it's present course (IMHO) but the brakes may be applied sooner rather than later given the above scenario OR/AND mortgaged debt is eroded quicker as a consequence of higher inflation

Quite right Subby - this is a high risk strategy from the Fed - and a week early too on the decision! Will have to wait and see what the outcome is (if any), however if this doesn't halt the onrush of recession in the USA well then we're all going to hell in a hand basket.

Also maybe slightly off topic - forgive me - an interesting BBC story has just been published i=on the site entitled Millions spend more than income

Quote is as follows: "Five million people, or one in 10 adults, spend more than they earn on a monthly basis, according to financial comparison website Uswitch.
The website said a further fifth of adults have no spare money left at the end of the month.
Half of those living beyond their means rely on overdrafts and credit cards to plug the gap, it said.
The findings come amidst widespread concerns that higher debts may push more people into insolvency this year."

I think the general feeling is that we're screwed!

I was shocked by this - gold likes it - up $35/oz today.

Gold Loves it

the $ is devalued more

...they are recovering...

And one of the best upward movers on the FTSE today was apparently a housebuilder..! must be expecting BoE to follow suit right enough..

The biggest irony yesterday was that on the day the markets woke up to the extended risks of sub-prime via their insurers, Northern Rock was UP!

or rather Post - Dot Com bubble

credit munumilia on the main board

http://www.bbc.co.uk/blogs/thereporters/evandavis/

We escaped the last big bursting of a bubble - the dotcom bubble - with a relatively light US recession. On that occasion, the world economy found its way back on track fairly quickly.

And that time, it was activist monetary policies - ie the slashing of interest rates that appeared to save the day. No wonder the Fed has chosen to repeat the formula today.

But this episode seems more serious than the dotcom one however, and it probably won't be resolved quite as easily.

Why? Because in 2000, we only managed to soften the landing from the crashing of the stock market bubble by creating a housing bubble. That supported American consumer spending, (enabling Asia to carry on exporting).

Alas this time there are no more obvious bubbles to create.

So today's cut in interest rates will struggle to support consumer spending at the levels necessary to act as a motor to the global economy.

Indeed, fiscal policy will struggle to do that either.

If you want to know the challenge facing the world, it is summarised by the American savings ratio - the proportion of disposable income saved by American households.

Back in 2000 and 2001, it was about 2%. It has now drifted down to zero (if not actually negative this year). That figure at some stage will probably have to drift up to something more normal, around 5%. As American consumers save more, the US imports and spends less.

The rest of the world feels the effect.

Now the fact that the American consumer motor is unable to power the world economy anymore, does not mean the world economy has to endure a long breakdown. We just have to replace the engine.

That means the world really needs spending in Asia to rise, to offset the slowdown in the US.

At the moment though, it's looking hard to see how Asia can pick up the baton as quickly as the world needs.

Which brings us to today.

The potential for a serious slowdown in global spending is spooking the markets.

But the markets themselves now threaten to exacerbate the very downturn of which they are so scared.

The Fed is spooked by the markets, so no wonder the Fed felt it needed to take drastic action. Even if it isn't going to work as well as it did in 2000, it might at least prevent markets and the economy driving themselves ever deeper in to a quagmire.

...../..........


Where do we go from here? anyone?

I was up till 3a.m. tracking the Far East Stoxx [what a bloodbath]. Fed cut was a done deal at the opening of trade this morning, but many expected 100bps not 75bps. Panic selling on global markets always occurs for some reason during American Bank Holidays. America has the fiscal sense to be nine months ahead of BoE.

Ed Balls was on the wires more or less conceding rates in UK will drop 75bps during 2008. Cantor was screaming for an immediate cut of 1%. The UK plc has the room to afford these cuts; arguments about inflation versus currency valuations are very complicated and not proportional. These rates cuts will stop an outright or full HPC to break in 2008. But 2009 with reflective and mature thinking, could be different. Figures on company updates and trading statements from stateside, show +ive signs so any recession should be mild. ECB has no option but to vary its strategy. My prediction was for a rate rise of 50 bps in 2008, this will now reverse IMO of 25bps to 50 bps.

These scenarios are Nirvana.

Noticed yesterday that during FTSE bloodbath all building related stock such as Barretts etc closed up 5%. UK Commercial REITS are 40% at current downgraded 2008 NAV, with a 7%-8.5% dividend yield. Could be a buying opportunity.

I'm looking to buy some financials when the behemoth that is sub-prime is fully known and the risk is priced in

edit - just to say it could be a long wait!

Ditto. Heard on the wires Soc Gen are in trouble? Has it been released to market. TSB yielding over 8.5% after getting the ass kicked out of it. The big R word could affect sentiment for a while though. I'm in the long grass waiting. As far as risk aversion, stock markets react very quickly and adjust pricing to risk. In terms of 2008 going forward with further write offs by financials etc, this price to risk is already expressed in valuations. If I listened to the likes of Ross on First Active [circa 2001] or it seems Vicmac now, then serious opportunities would be lost.

PP this is exactly as I see it - GB will follow suit and debauch our currency.

Why? In order to do away with it you must debauch it first.

I don't doubt you will get the spikes that will allow serious investors to make money on the markets. So don't get me wrong - go right ahead and play the markets you can still win in a bear market between the troughs and peaks.

But for anyone out there just leaving their money to be managed - they are in for a very big shock.

There will be more shocks in 2008 make no mistake about it. What I have said would happen has happened and people were calling me mad 6 months ago, but I was right. Its common sense really - we have a hugh balance of trade deficit, we have an expanding public service, we have govt debt spiralling out of control, we have economy centered around debt (housing and personal), we have rampant goods inflation (but salaries are not being rampantly inflated)...., our manufacturing sector has been decimated the list goes on and on and on and on and on......

Our Banks have been doing silly things (all of them), and the insurers of their debt look as if they are about to be given the thumbs down--------

Tell me md23040 can you ever remember a time like this before now?? ever? I remember bad times but there always was a silver lining - we had industry in those days and we made things and somehow we manufactured our way out of recession - we can't do that now! Because we don't make stuff any more we just consume and put it on the tab.

Financial Prudence has gone right out the window..... and now we are truly maxed out on debt - sure we can inflate our way out of this situation right now - but for how long do you think that will work - a year maybe???? 2 perhaps and then the problems will be an order of magnitude bigger than they are right now...........

And tell me md23040 can you give me one piece of good news as far as our economy and currency is concerned that is not a mere shortterm fix...........

This patient economy is in the sickward and right now the question is 'is the prognosis terminal'...........

Yes - recessions are merely part of the downturn in cycles, UK Plc may have a longer downturn than others. It is sicker than most. Yes the government is muppets and I believe in the Hayek philosophy of economics and cheerlead a certain US political figure.



It is short term, but all governments always have their sights only on short term issues, because of the next election etc. Monetarism of the Conservatives and Keynesian economics of Labour, if they can be called this have both failed. But as a result of any short term fix, the global economy will continue to grow stronger and the UK will benefit from any US or Global upswing [Euro Zone GDP is much larger than USA]. Again never under estimate America.

For the present the World will definately get richer and at the moment it has two halves, on different cycles. For many Far Eastern countries, subprime is not even on the Reiter scale including Russia. It is Western phenomena. The balance of power is changing. Not all countries are going to benefit, but UK plc has survived quite a while yet. My thinking on investment decisions spans the globe, both for property investment and other vehicles.

Finally I say again. I like recessions it cuts the rut, forest fire then consolidation followed with buds flourishing again. Economies do not need to spike straightaway like 2001 with a new consumer toy, like HPG. Growth fundamentals of 80’s America should be the criteria rather than consumerist based vision.

First things first though, get rid of that destructive parasite Bush then take it from there. Hopefully with an end to Bushism, so will there be an end to consumerism too. I do not believe in all that new order stuff, some makes sense but who benefited most over the last 8 years with commodity and oil spikes. The Carlton Club and Bohemian Grove, both clubs have many Bush Clan members [Free Masons on Acid]. Coincidence or luck, with an orchestrated war planned in 1996/8? It’s a cynical world.

All of the economic problems we are seeing - credit crunch, bank run, subprime, falling house prices, stock market jitters - are IMHO because of cheap credit causing a credit bubble.

Or basically, too much money has been lent to too many people, who cannot reasonably afford to repay that money.

Now the FED are lowering interest rates, providing more cheap credit.

This action is like trying to put out a fire, by pouring petrol on it.

Another nice anology :-

We in the UK are going to realise soon - that after a binge, you get a hangover.

So is it best for me to keep my deposist in the bank savings a/c (Northern Banks & Sainsburys) or what should I consider doing with it?

I don't think I'll be buying for at least a year now.

Personally speaking - all our cash is locked up in nationwide e-bonds and the like; I got the 6.7% rate so there's little to tempt me away from them (fixed for a year anyway). Don't forget your ISA allowances as well - £3k cash or £7k equities which can be held in a 'cash' fund.

Apart from holding as cash, nothing else appeals to me at the mo.

If I think inflation really takes hold then I will revise the situation, until then.......

Historical facts show that recessions since world war two typically last 10 months whilst growth follows for 57 consecutive months. I agree the credit being pushed out of the market is rebalancing equity. But the Fed is using interest rates to stimulate the economy for company's to expand not for consumerism. The Fed has done the same thing aggressively on each and every occasion to stimulate the system. The main mandate of MPC is to control inflation but this is not the only driver. It's a done deal, rates will be cut to stimulate UK Plc. It is a sick animal same as States. But the sooner Bush is gone, and a decent replacement can be made to Brown the better. Finally Vicmac mentions no manufacturing; there is no "low intellectual" manufacturing, such as clothing. I don't think a Fruit of the Loom scenario would make a jot of difference. But there is a strong base in the high end, low currency and interest rates will help them grow. GDP has been strong over the last number of years and unemployment low. Compared to Germany with a strong base and 10% unemployment, UK is in better shape. But the balance of payments etc needs addressed. Global psyche will change back to a Clinton based model later this year. Re rates for the UK, Feb won't be 50bps cut, but 25bps followed with the same again in March. Over the whole year IMO a drop up to 75bps.




I can't see rampant inflation or deflation increasing. Over the last 10 years there has been democratisation within consumerism. Designer brands are more freely available, flights around Europe affordable. These were the elitist symbol of the upper middle class only, now reserved for Burberry Chav's.

PP - as always excellent advice on monetary and equity ISA's. Free of CGT use the allowance before the end April.

Thank you for the compliment; and if I may return it, we have a good mix of people on the NI Forum with different experience etc., and I always look forward to reading your posts md as it is obvious to me you have ridden through a few financial storms in the past and came through the other side.

I take on board your comments re. inflation and I hope that your assessment is correct. Yesterday put fresh doubts in my mind with the FED cut (or rather the magnitude) and similarly the negligible affect on the $.

However, I suffer from over-simplification sometimes and with regard to inflation this is probably the case.

I read with interest your comments about some of the banks having the sub-prime risks already priced in and I concur with your thoughts about the Stock Markets reacting quickly. As we have both said, now is the time to sit in the long grass and await less volatility in the markets.

A pleasure PP and Danke to you too.

On the language, I think the Germans have managed to get their way again, much to French dismayal.

European Central Bank president Jean-Claude Trichet has said economic growth in the euro zone could be lower than previously expected due to the current world financial crisis. Mr. Trichet told the European Parliament that although the ECB was sticking with its forecast for 2% growth this year, risks to this figure was growing. He also stressed the importance of keeping inflation. The remarks dampened hopes that the ECB would follow the US Federal Reserve in cutting interest rates.

In all circumstances, but even more particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations,' he said.
With euro zone inflation running at its highest in over six years, the European Central Bank had previously raised the prospect of raising its interest rates to keep prices under control.

When is the ECB going to realise the inflation is being caused by cost push rather than demand led. The cost push inflation should deflate during 2008 with US recession, and oil fall to $80pb. The Agric inflation should also be brought under control. Whenever a new American administration arrives, and cuts any subsidy towards oil crops. This is total political motivation towards Republican Mid West voters, rather than any commercial sensibility. It is nonsense and worthy of a Monty Python sketch.

Growth in ECB will IMO swing in the second half of 2008 to less than 1%, and when ECB realises inflation to be in control, it'll then follow the Fed and drastically cut rates. Little too late. Economies take much longer to react with IR movements. These issues should be moderated and now, rather than drastic/later. Finally if Germany wanted to contain inflation, why give a 15% to the train drivers? That, by the way is demand led - dangerous and their own doing.

Goodbye Dollar!!!

Well I've got £50k in a Northern Savings a/c @ 4.95% and £30k in Sainsburys @ 6%. I always put £3k each April into my NS&I a/c so what sould I be doing? I'm hoping to maybe purchase a house when the prices drop, does that mean that an e-bond is not a good idea for myself as they are 1 year terms?

(Apologies for the slight hijack to this thread:))

for starters ...what bank did you rob to get over 80k sitting about

Looks like you were correct md23040 on your info re Soc Gen: Rogue trader to cost SocGen $7bn from the BBC. Big news. Nick Leeson has been outdone (allegedly!)

Most of it is my inheritance from my mum given to me (she's still alive btw) in order to get on the ladder... The rest is money I saved since starting work 7 years ago.

I've no car and i live in shared accom, so my outgoings per month are quite low, hence it was easier for me to save the cash.

Some people would have used the £80k to jump on before now, but I'm more prudent/miserable* with my cash.

* Delete as appropriate.

RD - i would have thought you could have done better than 4.95%? If you don't want to go over the 35K level than you could split this between 2 x instant access accs operated by major operators (i.e. not the specialised mortgage banks). Tesco's are offering 5.5% (a joint-venture with RBS).

Nationwide (a mutual - no shareholders and no BTL lending etc) offer 5.5% on e-savings.

With regard to the e-bond, if your question regarding the year fix is really: will HPs go back up in the next year, well it's crystal ball stuff but there's a few on here that think otherwise

scrap all the bumf about the currency funds because most can only be held outside an ISA anyway!

really the term cash / currency fund is a misnomer with regard to equity ISA's - bond funds (such as corporate and Govt. backed bonds) would be available that offer a similar v.low risk BUT not zero risk such as a straight forward deposit accounts (Northern Rock anyone!)

edit - more edits than a hans blix report!

following on from above - see media thread re; Ulster Banks Economists 20% fall prediction from Aug. 07 peak

Shares rise on US rate cut hopes

Global investors are focusing on the Federal Reserve's latest move
European and Asian shares have risen on growing expectations that the US Federal Reserve will announce a further cut in interest rates.
As the US central bank begins a two-day meeting before its latest rates vote on Wednesday, the UK's FTSE opened up 51 points or 0.9% to 5,840.

Germany's Dax was 0.5% higher, while Japan's Nikkei earlier rose 3%.

The Fed is tipped to cut US rates to 3.25% or even 3% from the current 3.5%, as it moves to ease recession fears.

Last week, it reduced rates to 3.5% from 4.25% in an emergency move after global stocks fell heavily.

'Roller-coaster ride'

However, some analysts warned that while global investors were currently being cheered by the expected cut in US interest rates, further weak American economic data could bring shares back down again.

Following record-low US new home sales figures released on Monday, the latest American consumer confidence data is released later on Tuesday.

"Expectations for further US rate cuts are lifting markets, but whether the market could sustain the gains, it's up to a series of US economic data due soon," said Lee Kyung-soo, an analyst at Daewoo Securities.

"Markets look likely to extend a roller-coaster ride, at least in the first half of 2008 when more dismal news about the US economy is expected to be released."

Wall Street's main Dow Jones index closed Monday trading up 1.45% or 177 points.





.....rates maybe getting chopped again ...that's a HUGE gamble by the Fed but too little too late methinks

One thing that bemuses me with the 'fallout' of the sub-prime crisis and its associated affect on stockmatkets, is that only 5 years ago the SMs took a major battering with the onset of the IRAQ2 war - which was far more damaging:

http://uk.finance.yahoo.com/q/bc?s=%5EFTSE&t=5y

I made a smallish purchase of a FTSE financial today - could be a silly move but it's like the lottery - you got to be in it to win it!

of course this is all IMHO etc etc DYOR etc etc WYSIWYG etc etc YMCA, AA, RAC, MFI etc

good luck on your purchase

Anyone guessing what the FED is going to announce today?


http://www.bloomberg.com/apps/news?pid=206...&refer=home


/.............The Fed's announcement is scheduled for about 2:15 p.m. in Washington. While most economists predict a half-point move, 21 in Bloomberg's survey forecast a quarter-point cut, one called for 0.75 percentage point and 15 saw no change.

Half-Point Move

Traders estimated a 70 percent chance of a half-point move and 30 percent odds on a quarter-point, based on futures prices on the Chicago Board of Trade. Treasuries rose on speculation of another rate cut with notes falling for the first time in three days........../

the fact it's so soon after a whopping 3/4 point cut ...I'd go for a further 1/2 point at most. they must really be shitting themselves if they're doing it again. Markets will bounce on this announcement. Id say the FTSE will shoot up over 100 points almost instantly

Sub-prime woes push UBS into red

UBS has been hit hard from the US mortgage meltdown
The Swiss financial giant, UBS, has unveiled a loss for the whole of 2007 after exposure to the crisis-hit US housing market hit earnings.
It made a full-year loss of 4.4bn Swiss Francs ($4bn; £2.02bn) in the 12 months to the end of December, compared with a 12.2bn net profit in 2006.

UBS unveiled a new $4bn writedown on investments linked to sub-prime loans, taking its total writedowns to $18.4bn.

The US sub-prime problems have hit the balance sheets of banks worldwide.

The annual loss was the first since UBS was created from the merger of Union Bank of Switzerland and Swiss Bank Corporation in 1998.

The announcement came two weeks before the Zurich-based firm was scheduled to report earnings. It said it would provide further details of its financial performance on 14 February.

Deep problems

UBS has suffered from investments linked to US sub-prime mortgages, which were lent to US homebuyers on low incomes or with patchy credit ratings.

These investments quickly soured as higher interest rates pushed up mortgage payments and triggered a wave of defaults.

UBS had warned that it could make a loss for 2007 depending on its performance in the last three months of the year.

It has estimated that it made a net loss during this quarter of 12.5bn Swiss Francs - far worse than many analysts had expected.

The firm is now struggling to restructure its investment banking division to reduce risk and repair its damaged reputation, and it has sought funds from Singapore and the Middle East.

The crisis in the US housing market and ensuing credit turmoil has also hit other big Western banking giants, including Wall Street giants Merrill Lynch, Citigroup and JP Morgan Chase, and BNP Paribas, France's biggest bank.

Contrary to the main boards, I applaude Bernie for a 50bps reduction!! He's twelve months ahead fiscally compared to the MPC muppets. Strong data prior to the cut is emerging out of the States.

http://www.bloomberg.com/apps/news?pid=new...id=a3E29Ov58tiA

Treasuries Fall as Report Indicates Faster January Job Growth
By Deborah Finestone and Daniel Kruger

Jan. 30 (Bloomberg) -- Ten-year Treasury notes fell a third day as a private report indicated U.S. job growth accelerated this month, demonstrating strength in the job market. Companies in the U.S. added 130,000 jobs this month, compared with 37,000 in December, ADP Employer Services said today. The median forecast in a Bloomberg survey was for a gain of 40,000.

Signs of Growth

The Labor Department may say on Feb. 1 that the economy added 65,000 jobs in January, up from 18,000 last month, according to the median forecast in a survey by Bloomberg News.

America has realised inflation is arising due to external factors or cost push factors and is now engaged in a defacto dollar devaluation. At the start of the Millennium, note the States had 1% rates for over 24 months. It's strange though, the ECB normally follows the Fed moves but of late it hasn't. All eyes will be on the 7th of Feb for ECB and BoE. For those who mention the BoE's job is to control inflation solely, thanks crap. If it where, rates would be 9%. Inflation is a primary target but protecting the economy will be equally important.

Thats true, we'll be at 5% soon enough, the question is, will it work? The tax burden here is high, debt both personal and govermental is high. Assets are insanely overvalued, I doubt UK plc will wallow out of the mire so easily

Bernanke's high risk strategy seems set to continue - especially look at his comments in bold below;

http://news.bbc.co.uk/1/hi/business/7267393.stm

Bernanke hints at more rate cuts

Mr Bernanke has been forthright about the economic risks

US Federal Reserve chief Ben Bernanke has hinted that the central bank is prepared to cut interest rates further to help ease recession fears.

In his semi-annual report to the US Congress, Mr Bernanke said the Fed would continue to "act in a timely manner as needed to support growth".

Analysts said his comments increased the likelihood of another rate cut at the Fed's next meeting on 18 March.

US interest rates are currently at 3% after two major reductions in January.

'Distinctly less favourable'

Despite saying the Fed must continue to keep a close eye on inflation, Mr Bernanke said economic conditions had become "distinctly less favourable" and could get worse.

"The risks include the possibilities that the housing market or labour market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further," he said.

Mr Bernanke's downbeat comments are the latest in a series of warnings he has given this year about the health of the US economy.

Although he said inflation remained a worry, it is expected to go down as high energy and commodity prices recede.

"The key thing is that Bernanke is talking about providing adequate insurance against downside risk," said analyst Firas Askari, of BM Capital Markets.

"This is a Fed that is poised to react to growth risks and I think they are probably doing the right thing in focusing on sluggish growth more than on inflation.

"They're willing to inject more juice into the system, and that's what they need to do."

Injecting more money into the system is a good thing.

With more money people can become richer

If people are better off then they are happier.

More banks should print money - lack of money means that i can't do everything i want like go on holiday or buy a car.
Instead i have to work for money.

If Gordon Brown gave everyone £1000 that would be great for the economy - why won't he do it?
Because he wants all the money for himself - he is selfish.

Are Bernanke's rate cuts working?

TIPS' Yields Show Fed Has Lost Control of Inflation

http://www.bloomberg.com/apps/news?pid=206...&refer=news

............./.............

For the first time in a generation, money managers must come to grips with a central bank that's more intent on spurring the economy than restraining price increases. With oil above $100 a barrel, gold approaching $1,000 an ounce and the dollar at a record low against the euro, TIPS show investors aren't convinced Fed Chairman Ben S. Bernanke will be able to tame inflation once policy makers stop cutting interest rates.

............/............

md - a few things I would like your thoughts on when you have time (and I appreciate that this time is freely given and you are busy). Furthermore, I will take your opinion as it is given (on an open internet forum) and not at any stage will deem it 'advice' and neither should any readers of your response(s) either.

Right, now we have got all that out the way here goes....

Is it fair to say that in this 'modern era' of declining Western based manufacturing industry (with the exception of some corporate out-sourcing) that the 'health' of the US economy in particular is increasingly dependent on debt i.e. the FED controlling IR's to stimulate borrowing and generate consumer & business spending /mortgage lending (or the reverse, curb spending to combat inflation). Therefore, whilst the FED are drastically cutting rates to stimulate growth through spending, does this not carry a great risk of fuelling further inflation?

With particular regard to the liquidity injections and capital made available to the banks directly from the FED (because of the credit-crunch), at what point do the liquidity injections stop? when everything is 'hunky-dory' again? But is this approach not basically flawed as consumer debt-saturation (incl. mortgages) is at unprecedented levels? (add to that sub-prime lending and real-estate deflation).

It seems to me that this combined 'high-risk' strategy that the FED is currently undertaking is very much at the expense of the $ and therefore the paradox of continuing oil price rises and investors leaving the dollar for 'safer' investments will continue.

Finally, a direct question regarding investment where I would respect your privacy if you declined to answer: What do you think is a sensible 'hedge' against continuing commodity inflation (namely oil and food-stuffs)? OR is it necessary to have such a hedge?

On the subject of gold, I don't really want to embark on any discussion on this matter because 1) there has been too much 'noise' regarding this subject elsewhere and 2) I would be annoyed if I thought I was being a ramper. But, I will ask this one () question - is there not a case for having some of this metal as part of a balanced portfolio? (say 5% ish).

sits down and waits for the reply

Profit thanks for the welcome back. Things can change very quickly in the world economy, bit like NI HPG - look were it was 12 months ago to now. Whatever anyone’s view of America, it is still the top of the tree economically speaking and accounts for 28% of Global GDP and even more on the PPIndex [Chinese/Indian de-coupling is not achievable for 10 years at least]. To get in context China's GDP is the same as Spain/Portugal combined at $1trillion, it was revalued downwards last Oct AFAIK by the OECD or some other measuring agency. So although the likes of China and India want to become more westernised and there are loads of them - I don't buy the argument. The fundamentals don't stack for grains by comparison to meats, also in the grains the EROEI of sugar/corn is driving the sector and this does not make sense long term, as the ratio is typically 0.6 to 1 or 3 to 1, this only works in the latter measure at$110bp based on solid dollar values – but in truth oil is rising asa result of dollar weakening and as a short term hedge - my view of oil depoists is same as WStreetJournals - 16trillion barrel regardless of EROEI - there is little of light sweet etc for aviation industry but loads of heavy crude.

Re grains- Last night I watched the BBC news talking about the price of wheat and some bunker in Oz being empty - what a load of cobblers and scare mongering. Land wise 90% of the continent is desert and it's hardly the world’s bread basket. Incidentally Russia, USA [esp. Iowa] and Turkistan are the global bread basket and these places will have a bumper harvests in 2008/09. IMO and many others, grains and metals have been speculated on by the Hedge Funds and large institutional investors and they have created bubble environments. On bubbles generally there is always insider trading, it exists very clearly in the city and elsewhere. The FT is chip paper and three days behind the old boys club and its decision, so trying to stay ahead of the curve with imperfect information when they are slowing dumping based on perfect information can led a small investor to get burn’t [Crop forecasts etc on the CME are known before release etc]

I think within the commodities sector, gold/metals are being slowly dumped by the banks and are reducing weighting - there’s a load being dumped on the market in the next 30 days that will go un-noticed [300-500 tonnes] can't remember who it is, but the small guy will buy, same persons that bought the tech shares at the top.

For the 1999 picture see here http://news.bbc.co.uk/1/hi/business/the_economy/351546.stm

Gold is at $1000 at the moment, upside is it could double/triple. Downside in the medium term, if dollar finds a floor it'll fall so fast your nose will bleed. The highest it's ever been was $870 in 1980 or indexed to today’s terms $2400 so it has a lot of upside. Especially considering money printing has been fivefold during this time, it has the potential to reach $10,000. I bought in 2004 and will sell Q3/2008 possibly. I am watching the Fed very closely and dollar pricings and any major bull spike - could be last throw of the dice. But if America degenerates then it could go to $5000, but that's and big if. USA is smarter than we think, and so is Bush.

My Mantra like Buffetts is buy cheap sell high - that's what I'm doing. Btw I prefer property etc as you can add value and control through renovation or extension. For instance at the moment we are putting an extension to a German shopping centre to double the size, and 80% is pre-let. There are residential properties in Europe going for €30k that are seriously good long term investments, yielding 30% per year - no kidding [can give links]. The subprime thing in my mind and the American Armageddon is over done but I'll talk about that later, in another post. Where value is might be staring you in the face, that is equity [non financials] and again Buffetts view is close to my heart. It should be a business you understand, with favourable long term growth economics, trustworthy management and a sensible price tag - for instance Vodafone, a convergent company with a low P/E getting wide penetration in Asia.

My views on America are very close to Berkshire Hatchways view - Chairmans letter [Feb/08 Pages 38], by you guessed it, Buffett. Also give a few pointers for money investment if interested. If bored, please block me as I have recently learned now to do.

Btw if specualting a basket is essential to stave getting burn't. Split equally between equity -- oversea's property/REIT/REIV's -- commodities. Anyone buying commodities solely without a hedge is asking for trouble...

hi MD
great to see you back
still like your style
just the content i have a few quibbles with
you state that the bread basket areas of the world will have bumper harvests this year
is this not being ever so slightly presumtious
given the fact that this years quality spring bread making wheat crop
has not even been planted yet in the afore mentioned areas
you talk of a grain bubble
and no doubt there are many speculators jumping on the band wagon
but just like houses commodities run in cycles
a bull run in the soft commodities usually last 15 years aprox
given the fact that we are at most only 2 years into this one
surely it has a lot further to run
these properties yielding 30% where are they?
sounds very tempting
as for speculating
my own thoughts
cant go wrong with pork bellies
6 months they will be mega!

rock on!

Thanks for taking the time to reply

re. the dollar finding a floor, it will be interesting to see what happens when the rate cuts are over and there is a 'hint' of a rise again. For me I cannot see the 'dollar floor', whilst aggressive cuts are on the cards. Similarly, you mention a possible get out of gold date around Q3/2008, would your thinking on this date coincide with the possible end of the rate cutting / early stabilisation period following cuts?

When the rate starts to rise again, then this could be the trigger for the end of the commodities boom*, but there is the little matter of seeing the effects of these cuts first: will they work as intended and increase inflation as a by-product? or will the associated liquidity injections just fill black holes of depreciating assets and signal deflation?

Will I ever understand all this properly?!

The next 6 months will be fascinating to watch, I just hope it's not car-crash TV!!!

BTW with regard to the mixed basket approach it certainly makes the most sense at present: I think the FTSE's reaction to the liquidity injections was telling, pretty un-impressed on the whole.

*whereas the last prolonged period of rate rises coincided with the end of the real estate boom

just seen your post there RnR

re: "a bull run in the soft commodities usually last 15 years aprox
given the fact that we are at most only 2 years into this one
surely it has a lot further to run"

with regard to metals say, the implactions of that time-frame could be staggering given the rises so far, but there is talk of 'bubbles' in some quarters.........

EDIT - moved link