A popular talking point on Wall Street at the moment, says the FT, is whether the “current squeeze on credit markets will be long and shallow, or short and deep”. It is an optimistic way of putting the question: the odds are it will be a nasty combination of the two options, ie, long and deep. The stockmarket knows this already. Markets in Europe, Japan, China and the US (if measured in euros) are already technically in bear markets – they’ve fallen 20% plus from their peaks.
The Federal Reserve, whether it will admit it explicitly or not, knows it too. Why else would it be pumping another $200bn of cheap money into the banking system in exchange for collateral in the form of mortgage-backed securities? And, of course, all the other central banks around the world know it. That’s why they’ve all jumped to co-operate with the Fed’s efforts – and why they’ll all be rather disappointed to see that these aren’t working very well. Sure it pushed most stockmarkets up a bit on Tuesday and Wednesday but the net result doesn’t really reflect the scale of the operation: in the end it took the S&P 500 back to roughly where it was last Tuesday.
Alistair Darling used his budget speech this year to dwell at tedious length on the “resilience” of the UK economy. But in the face of the global credit crunch, the truth is that there’s nothing resilient about it at all. Anyone in any doubt need only look at our inflation numbers; about-to-crash housing market; collapsing currency (holding up against the US dollar, hitting new lows against everything else), and lousy Government finances.
And as Darling’s feeble budget showed, he knows there is nothing he can do about any of this. So he didn’t really try. Instead, he bumped up our taxes by a couple of billion; made a few pointless announcements about consulting on things no one is remotely interested in (such as 25-years fixed mortgages); and chucked a few quid at the lowest-income groups while bumping up the costs of their evening tipple by 6% more than inflation. Hopeless.
Still, on the plus side, bad news tends to be good news for the gold price, and this week we’ve refined our recommendations on how to buy into the bull in precious metals. If you want to make real money over the next six months, we think that as well as being in straight gold, you should be in some of the junior gold producers.
On page 26 Dominic Frisby, just back from a big mining conference in Toronto, explains why and tips his top stocks. The other good place for your Isa money could be some of the Latin American economies, notably Brazil and Argentina, which have huge supplies of everything the rest of us most want: food, water and minerals. With that in mind, I’m off to Brazil for a few weeks. I’ll let you know what I find.
PS. Last week I referred to Friends Provident as a doorstep lender. I meant, as most of you will have realised, Provident Financial, to which Friends Provident is not related!