Gold vs Sterling...

Source: Money Week

 'Why you should hold on to gold'

By Dominic Frisby Jan 07, 2009

...If you look at how gold has traded vs sterling since Gordon Brown sold our gold, you will notice a distinct staircase pattern. It shoots up, then consolidates at the higher level, then shoots up.

...Based on this repeating pattern, since we have just had a sharp shot up – and this could continue for a short while longer - a period of consolidation is now likely, before the inevitable march to £1,000 an ounce and beyond. But I would not sell a flake of your physical gold yet. It is your insurance - if sterling implodes, you'll need it.

...When measured in gold, this is already the worst house price crash in history

I don't know if this sell-off in sterling has been orchestrated, but it suits the government. The economic downfall doesn't look nearly so bad measured in weakened sterling as it does in, say, dollars. House prices are down some 15-20% from the highs, depending whose figures you use, measured in sterling. But measured in gold, this is already the worst crash in history, as the chart below shows.

What's more, this crash still has a lot further to go.

In this chart, having risen by the most, London prices look set to fall by the most:

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Half London homes on market for longer than 3 months

Source: This is London

More than half the properties for sale in London have been on the market for longer than three months, figures show today.

The proportion of "stale" properties in the capital has jumped by almost 20 per cent since the start of the year. In January 32 per cent had gone unsold for more than 90 days. Last month that figure was 51.2 per cent.

It is more evidence that the homes market is paralysed by "brickor mortis" - when sellers hold out for the right price but buyers struggle to get a mortgage and wait for prices to fall further.

Property website Globrix found the highest proportion of stale properties were in Tower Hamlets and Kingston, where they now make up almost two thirds of the homes for sale.

In Kingston, the proportion has doubled since the beginning of the year from 31 to 62 per cent while in Croydon the figure went up from 18 to 43 per cent.

In Harrow it almost tripled - from 20 to 56 per cent. Bexley was the only borough where the percentage of properties still on the market after more than 90 days has remained static, at 41 per cent.

Agents' website Rightmove, which coined the phrase "brickor mortis" said: "With the scarcity of mortgage availability and the increase in unsold property, brickor mortis is the paralysing condition of properties that stay on the market for so long that they are effectively dead in the water".

The most notable example is the former Belgravia home of London's ex-Transport Commissioner, Bob Kiley, which Transport for London has been trying to sell for a year. It remains on the market in spite of a price cut from £4.95 million to £3.5 million...

More: This is London

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House prices falling at fastest rate in 25 years

Source: Telegraph.co.uk

Home owners have been dealt a double-whammy of doom, as figures showed that house prices were falling at the fastest rate in at least 25 years and the Bank of England failed to cut interest rates.

The Base rate was left at 5 per cent, despite the increasing threat of recession.

While the move was widely expected by economists, it will further add to the pessimism in the housing market, which has been rocked by falling prices and very low levels of activity.

Figures from Halifax, the country’s largest mortgage lender, showed that the average house has lost £25,434 in value over the last 12 months to reach £174,178, equating to a drop of 12.7 per cent.

The lender has never recorded such a large annual fall since it stared its monthly survey in 1983.

The average house price is now just below the Government’s new, temporary stamp duty threshold of £175,000.

Halifax’s chief economist Martin Ellis said: “The pressure on householders’ income, together with the reduction in the availability of mortgage finance due to the global financial markets crisis, is resulting in both lower property prices and activity levels...”

More: Telegraph.co.uk

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Darling sends pound diving

Source: Evening Standard

Darling sends pound diving

Paul Waugh and Hugo Duncan

The pound crashed to a record low today as the City reacted to Chancellor Alistair Darling's warning on the economy.

The markets sent sterling plunging to 81.39p to the euro, the lowest since the European currency was founded in 1999, in the first trading since Mr Darling said Britain was facing its worst squeeze for 60 years.

Combined with speculation that Gordon Brown was set to sack his Chancellor, fears that Britain was set for a longer slowdown sent the pound falling to $1.80 against the dollar, the worst in two years.

Tory leader David Cameron accused Mr Darling of triggering a "crisis of confidence" and warned that his claims about the difficulties facing the UK risked "talking the economy down".

The Prime Minister tried to reassert his authority by seizing control of Labour's economic recovery plans, including proposals to help hard-pressed homeowners and first-time buyers.

He will also use a speech to business leaders this week to contradict Mr Darling's gloomy prognosis and claim instead that Britain is set to benefit from "new business, new jobs and prosperity" as the world economy doubles in the next 20 years.

But City economists said that reports of a split between No10 and No11 Downing Street, together with fears that Mr Darling was telling the truth about the state of the downturn, were enough to send the pound plummeting.

Ian Stannard, senior currency strategist at BNP Paribas, said: "Most people believed that things were probably deteriorating faster in the UK than the Government was admitting, but the fact that we've seen the Chancellor come out and admit that things are far worse have put sterling under pressure."

Simon Derrick, chief currency strategist at Bank of New York Mellon, said: "The last thing you want to hear is there is a split at the top between the Prime Minister and the guy running the economy. It does not fill investors with a great deal of confidence so I don't think it's surprising sterling has collapsed."

Sterling also weakened ahead of Thursday's interest rate decision. It is widely expected that the Bank of England will keep rates at five per cent for this month after inflation hit a 16-year high of 4.4 per cent.

Mr Cameron rounded on Mr Darling's "60 years" comments, telling Radio 4's Today programme: "I think it's extraordinary that the Chancellor said it because the Chancellor of the Exchequer has got to think not only, 'I must tell the truth at all times' but also, 'I must use my words carefully so that I don't create a situation that's even worse'...

More: Evening Standard

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Why house prices could fall by 50%

By Jody Clarke 

Source: Money Week

'...So prices are destined to fall further, the only question is: by how far? At MoneyWeek's latest roundtable discussion, James Ferguson, an economist at Pali International and author of MoneyWeek's weekly Model Investor email, suggests house prices are likely to drop by 50%. And even that will only bring them back to fair value. James is often considered to have pretty extreme views on the housing market, but at our roundtable this month no one was arguing with him. Some of the other participants even pointed out that with the kind of overshoot you get in most markets, 50% could be optimistic. And how long will all this take? Based on the speed prices are falling, says James, it'll be a while before the official statistics show the market has bottomed but some sellers will always be more desperate than others. Give it 18 months to two years "and you'll find some serious bargains about...'

More: Money Week

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The collapse of Bear Stearns and the UK economy

Source: Money Week

"In fact, the pound even fell against the dollar, unlike almost every other major currency. The horrible reality is that the markets think that the UK is in almost as much trouble as the US…"

"The Dow Jones actually managed to end higher yesterday, up 20-odd points by the close, as traders gradually calmed down after no other banks went to the wall. Fear had centred on Lehman Brothers, which has a similar business model to Bear Stearns, but it seems that Wall Street rallied round the group to avoid a run on the bank igniting – for now at least.

Of course, it’s saying something when you can argue that Lehman investors might have been relieved that the company’s stock ‘only’ closed down by around 20%. Other financials such as Man Group spin-off MF Global dived by more than 50%, on little more than fear and rumour. But the real carnage was happening this side of the Atlantic, here in the UK.

Which UK banks are the biggest cause for concern?

British banks took a pounding once again, with HBOS, Britain’s biggest mortgage lender, the top faller, down 13%. As Alex Potter of Collins Stewart told The Telegraph: “If people can pull liquidity out of Bear [Stearns] at the rate they did, all bets are off on the rest of the banking sector.” The main reason people are worried about HBOS in particular is that it has the highest ratio of money raised from wholesale markets, compared to customer deposits, at 177%, according to The Telegraph.

That still compares very favourably to Northern Rock, which was on 345%. But HBOS also has £7.1bn of exposure to Alt-A mortgages in the US, which are just above sub-prime. If the US property market continues to weaken – as seems very likely – those assets are vulnerable to some nasty potential write-downs.

But HBOS is far from being the only bank that investors are worried about. It wasn’t thought to be among the desperate lenders clamouring for money from the Bank of England yesterday, for one thing. The Bank of England auctioned off £5bn of short-term loans at 5.25% yesterday, but banks requested almost five times that amount, £23.6bn. The move came as the inter-bank lending rate spiked up to 5.59%, in the largest rise in three months.

Incidentally, if you’re worried that the bank you hold an account with could be at risk, you can read James Ferguson’s article on where the safest places to park your savings are here: How to spot the riskiest banks...."

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The best contrarian indicator of all: the Labour government

Source: Money Week

"This Labour government is fast becoming one of the greatest contrarian indicators in the history of markets.

After selling gold at the bottom of the market, they buy an insolvent mortgage lender – Northern Rock - at the top of the housing market. Are they really this incompetent? Or is it that the taxpayers’ interests are low on their list of priorities? Whichever it is – and I suspect it’s the latter - history will give them greater notoriety than the shoeshine boy who convinced Joe Kennedy to sell out of the stock market just ahead of the 1929 crash, when he started giving him stock tips.

They’re a bit like a really badly run hedge fund. The fees they charge are extortionate, the performance they deliver is woeful, and investors can’t get their money out.

“It was the right decision and the right time for the right reasons,” said Gordon Brown. Yeah, right...

The Government has managed to buy one of the housing market’s most aggressive lenders, just at a time when the housing market is running into serious trouble. Alistair Darling commented that “as and when market conditions improve, the value of Northern Rock will grow and therefore the taxpayer will gain." As and when market conditions improve! When’s that going to happen? 2012 at the earliest if Fred Harrison’s 18-year property cycle is anything to go by..."

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HOW THE CITY OF LONDON CREATED THE GREAT DEPRESSION

Source: The people's voice.org

• "BRITISH FINANCIAL WARFARE: 1929; 1931- 33
  

On Sunday, September 20, 1931, the British government issued its statements announcing its decision to "suspend for the time being" the clause of the Gold Standard Act of 1925 requiring the Bank of England to sell gold at the fixed price. All the other elements of the official British mythology were also present. "His Majesty's Government have no reason to believe that the present difficulties are due to any substantial extent to the export of capital by British nationals. Undoubtedly the bulk of withdrawals has been for foreign accounts." The bloody wogs, as we see, were once again the root of the problem..."

• "Elle avait...deux instruments: le taux d'escompte et la politique dite d''open market'....Depuis 1929 la Banque d'Angleterre a constamment utilisé ces deux instruments pour maintenir aussi bas que possible les taux en vigeur sur le marché de Londres. Elle a toujours retardé aux maximum les élévations de taux d'escompte qui s'imposaient, cependant qu'elle cherchait à augmenter, par ses achats de valuers d'Etat, l'abondance monétaire du marche." [Jacques Rueff, De L'Aube au Crépuscule, p. 301] 
  

• "on peut affirmer notamment qu'en 1929 et 1930, presque sans exception, la politique d''open market' de la Banque d'Angleterre a été faite à contresens. Les mouvements d'or, en effet, tendent à se corriger eux-mêmes, puisque toute sortie de métal tend à provoquer une restriction de crédit, qui hausse les taux du marche. Or, en 1929 et 1930, toutes les fois que de l'or sortait de la Banque d'Angleterre, celle-ci achetait des valeurs d'Etat sur le marché, remplacant ainsi les disponibilites qui venaient de disparaitre." [302]
  

• "Autrement dit, pendant les deux années 1929- 1930, la Banque d'Angleterre a constamment paralysé le jeu des phénomenes qui tendaient à adapter la balance des paiements anglais aux nécessites résultant de la politique économique suivie par le pays." [p. 303]
  

...

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Oups... (The name of the game)

Oups 1:

Florida Just First to Face National Run on the Bank

"The pool, which is where most of the state's municipalities put their money when they are not using it, owns $1.5 billion in securities that have been downgraded or defaulted as a result of the subprime market collapse.

In freezing the pool, Coleman Stipanovich, executive director of the board, said, ``If we don't do something quickly, we're not going to have an investment pool.''

The state stopped the clock.

The same clock is ticking for every state in the country where school districts and cities and towns put their faith in someone else, usually at the county or state level, to manage their money..."

Oups 2:

Lenders 'must prepare for worst'

"UK mortgage lenders have to prepare for the "very real prospect" of the global credit crunch getting much worse.
The Financial Services Authority (FSA), said a tougher global financial situation could affect the whole UK mortgage market, boosting defaults.

Access to cash could become more difficult - a problem that caused the run on Northern Rock earlier this year..."

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La crise du subprime rattrape les Britanniques...

Le Figaro

Des expropriations, suivies par des ventes bradées, pourraient déstabiliser le marché immobilier du pays

Plus de 5,5 millions de ménages vont avoir du mal à rembourser leur crédit immobilier"

"Parti des États-Unis, le crédit « crunch » pourrait jeter dans l’enfer du surendettement un tiers des souscripteurs de prêt immobilier. Soit 5,5 millions de Britanniques !..."

L' article

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Dollar heads down... and sterling will follow

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Source: Money Week

30.11.2007

"There is no relief in sight for the sliding dollar, which is at record lows of almost $1.50 against the euro.

Further US interest-rate cuts are expected as the economy worsens, while signs that China and other Asian and Middle Eastern countries are less likely to prop up the dollar in future are eroding confidence in its status as the world’s reserve currency.

The “latest scare” in this context is that the Gulf states may now loosen their ties to the dollar, “depriving the foreign-exchange markets of a reliable buyer” of the ailing currency, says The Economist..."

"The same could be said of sterling, which has slid to a four-and-a-half-year low against the euro and lost around 7% against the yen in the past fortnight...

In addition, Britain has similar problems to the US: a large current-account deficit and a housing market looking vulnerable to a nasty slide. By early next year, says HSBC’s David Bloom, sterling will be sliding against the dollar too".

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