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Sterling and the dollar both took a pounding against the euro yesterday.
A currency is often described as being roughly equivalent to the share price of a country. And the stock of both the
Economic data on both sides of the
Yet they’d still rather buy up a wobbly ‘Frankenstein’ currency that has only existed for a few years rather than risk their wealth in the banknotes printed by the
That’s not exactly encouraging…
So why the vote of no confidence in
In the
That’s not great news – the survey might be fairly young, but falling consumer confidence usually means that people spend less because they feel worried about how much money they have to play with. Consumers are actually in very dire straits, and they’re just beginning to realise it.
We’ve got less money coming in…
There are only two things to worry about as a consumer. The money that comes in; and the money that goes out. The easy availability of credit in recent years has meant that consumers have come to see a credit line as being pretty much indistinguishable from earned income, or investment income.
This confusion between debt and income has partly arisen because much of the credit has either been based on rising house prices (so it’s not really credit, it’s money consumers have ‘earned’ on their homes) or because it’s been put on interest-free credit cards and then rotated between different lenders, without the original capital sum ever being repaid (so it’s ‘free’ money).
If you find this hard to believe, then ask yourself why pay deals have been so restrained over the past 10 years, even as company profits have hit a record high. Workers haven’t been demanding more money from their employers, because they’ve been able to get it from the bank. Your boss might give you more money if you ask, but he or she will do it with a grimace and might even expect you to do more work in return. On the other hand, your bank manager will eagerly extend your credit line with a big smile and no questions asked.
Well, up until the middle of last year that is. Now the credit crunch means that lending of all stripes is being slashed. Credit card limits are being arbitrarily dropped; mortgage lending has dried up, even to the ‘low-risk’ buy-to-let sector. In fact, the Royal Institution of Chartered Surveyors has just reported that, for the first time since it started its monthly survey in 1998, “more surveyors reported a fall in new landlord instructions than a rise.” This is hot on the heels of news that the number of landlords struggling to pay mortgages rose by a quarter in the last three months of 2007.
…and more going on necessities
All of this adds up to one thing: the amount of money available to consumers on the income side of the equation is falling. So what about the other side? Well, the news on spending is bad too. Energy bills are rising. Mortgage bills are getting more expensive, despite the falling base interest rate. Food prices are shooting up – the British Retail Consortium reported that shop prices rose at their fastest annual rate since their price survey began. And you can bet that taxes will just keep going up to pay for the government’s ongoing profligacy.
So consumers are getting shorter of income, while their spending on necessities is rising rapidly. No wonder they’re not feeling confident.
All of this points to recession (
That gives us plenty of room to go. You can read Bill Bonner’s take on the case for investing in gold in this week’s issue of MoneyWeek, out tomorrow. If you are not yet a subscriber, you can get your first three issues free by clicking here: 3-week free trial.
Turning to the wider markets…
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Property stocks lead FTSE gains
In
On the Continent, the Paris CAC-40 gained 80 points to close at 4,756, and the DAX-30 was 138 points firmer, at 6,683, in
On Wall Street, stocks dipped into the red in afternoon trade on news that troubled bond insurer Ambac is to sell $1.5bn in stocks and equity, but a late rally saw the Dow Jones close in positive territory for the first time in five days. The industrials index added 41 points to close at 12,254. The Nasdaq was 12 points higher, at 2,272. And the broader S&P 500 was up 6 points, at 1,333.
Rising oil and metals prices saw Asian markets make good gains overnight. The Japanese Nikkei added 243 points to end the session at 13,215. And in
Property stocks lead FTSE gains
In
On the Continent, the Paris CAC-40 gained 80 points to close at 4,756, and the DAX-30 was 138 points firmer, at 6,683, in
On Wall Street, stocks dipped into the red in afternoon trade on news that troubled bond insurer Ambac is to sell $1.5bn in stocks and equity, but a late rally saw the Dow Jones close in positive territory for the first time in five days. The industrials index added 41 points to close at 12,254. The Nasdaq was 12 points higher, at 2,272. And the broader S&P 500 was up 6 points, at 1,333.
Rising oil and metals prices saw Asian markets make good gains overnight. The Japanese Nikkei added 243 points to end the session at 13,215. And in
Oil above $104, gold just under $1,000
Crude oil futures had fallen back from yesterday’s record close of $104.52 a barrel last night in
Spot gold was at $991.90 this morning, just below yesterday’s record high of $995.20. And silver hit a new 27-year high of $21.18.
In the currency markets, the pound was last trading at 1.9956 against the dollar and 1.3011 against the euro. And the dollar was at 0.6518 against the euro and 103.48 against the Japanese yen.
And in
And in
Our recommended article for today…
Why it’s a better time to be a lawyer than a chef
– Masterchef winner James Nathan gave up a career as a barrister to follow his dream and now hopes to run his own restaurant. However, the next few years are destined to be far kinder to those in his former profession than restauranteurs. For more from Merryn Somerset Webb on the wider effects of a slowdown in the City, read: Why it’s a better time to be a lawyer than a chef
A chance to generate ‘extraordinarily attractive returns’
– Once every few years events conspire to create opportunities which are out of the ordinary, says Niels Jensen of Absolute Return. To find out why he thinks you should ignore the pessimists and take advantage of one such buying opportunity, read: A chance to generate ‘extraordinarily attractive returns’