S&P threatens to strip Spain of top AAA rating
Standard & Poor's has threatened to strip Spain of its coveted AAA rating as country's budget deficit explodes, offering the clearest warning to date that even wealthy states are running out of room to borrow.
By Ambrose Evans-PritchardLast Updated: 7:31AM GMT 13 Jan 2009
Standard & Poor's has threatened to strip Spain of its coveted AAA rating as country's budget deficit explodes
The move caused fury in Madrid and revived fears in the currency and bond markets about the underlying health of Europe's monetary union.
Spanish officials are irked that S&P has placed Spain's debt on "CreditWatch Negative", a notch lower than the "outlook" alert issued on Irish bonds last week. It is the first time that a AAA country has suffered such a harsh verdict since the start of the global financial crisis.
Such a move typically precedes a downgrade within weeks but the finance ministry insisted last night this would not be allowed to happen. "There's not going to be a rating downgrade because we are taking measures to overcome the crisis," it said.
Trevor Cullinan and Myriam Fernández, the agency's analysts, said the housing crash had set off a downward spiral in Spain that would drive the budget deficit above 6pc by 2006, double the EU's Maastricht limit.
"We expect a substantial worsening in the Kingdom's public finances," it said, predicting 2pc contraction in 2009 and a long slump as years of credit excess are slowly purged.
Spain is discovering the limits of action within the eurozone. It can no longer let its currency take the strain, or follow the US, Switzerland, Sweden, Britain, in slashing rates. Indeed, Frankfurt raised eurozone rates last July at a time when Spain's housing crash was already under way. Unemployment has surged to 13.4pc, breaking the 3m barrier.
Michael Klawitter, from Dresdner Kleinwort, said Spain was now crumbling on every front. "Tax revenue is collapsing. There is a banking crisis and a massive deterioration linked to housing. It is arguable that Spain has already let matters go past the point of no return," he said.
"We are going to see fresh talk about the sustainability of monetary union and it is going to get messy. Spain is the most pro-EMU of the big states so there has not been any backlash against EMU, but who knows what will happen," he said.
Ian Stannard, a currency strategist at BNP Paribas, said Spain needs to raise €70bn (£63bn) this year on the bond markets, both to roll over old debts and to pay for a fiscal rescue package worth 1pc of GDP.
Europe's bond supply will reach €765bn this year, up 15pc from 2008. It is far from clear whether the markets can absorb so much debt. Although Spain's public debt is modest at under 40pc of GDP, this may not prevent a downgrade.
"The economy is less resilient than any other AAA state. It is more dependent on real estate and tourism, and there is very high corporate debt. Household debt is close to levels in Britain and the US," said Mr Fernandez.
http://www.telegraph.co.uk/finance/4224453/SandP-threatens-to-strip-Spain-of-top-AAA-rating.html
Tuesday 20 January 2009
Monetary union has left half of Europe trapped in depression
Monetary union has left half of Europe trapped in depression
By Ambrose Evans-PritchardLast Updated: 9:36AM GMT 18 Jan 2009
Comments 172 Comment on this article
Events are moving fast in Europe. The worst riots since the fall of Communism have swept the Baltics and the south Balkans. An incipient crisis is taking shape in the Club Med bond markets. S&P has cut Greek debt to near junk. Spanish, Portuguese, and Irish bonds are on negative watch.
Dublin has nationalised Anglo Irish Bank with its half-built folly on North Wall Quay and €73bn (£65bn) of liabilities, moving a step nearer the line where markets probe the solvency of the Irish state.
A great ring of EU states stretching from Eastern Europe down across Mare Nostrum to the Celtic fringe are either in a 1930s depression already or soon will be. Greece's social fabric is unravelling before the pain begins, which bodes ill.
Each is a victim of ill-judged economic policies foisted upon them by elites in thrall to Europe's monetary project – either in EMU or preparing to join – and each is trapped.
As UKIP leader Nigel Farage put it in a rare voice of dissent at the euro's 10th birthday triumph in Strasbourg, EMU-land has become a Völker-Kerker – a "prison of nations", to borrow from the Austro-Hungarian Empire.
This week, Riga's cobbled streets became a war zone. Protesters armed with blocks of ice smashed up Latvia's finance ministry. Hundreds tried to force their way into the legislature, enraged by austerity cuts.
"Trust in the state's authority and officials has fallen catastrophically," said President Valdis Zatlers, who called for the dissolution of parliament.
In Lithuania, riot police fired rubber-bullets on a trade union march. Dogs chased stragglers into the Vilnia river. A demonstration outside Bulgaria's parliament in Sofia turned violent on Wednesday.
These three states are all members of the Exchange Rate Mechanism (ERM2), the euro's pre-detention cell. They must join. It is written into their EU contracts.
The result of subjecting ex-Soviet catch-up economies to the monetary regime of the leaden West has been massive overheating. Latvia's current account deficit hit 26pc of GDP. Riga property prices surpassed Berlin.
The inevitable bust is proving epic. Latvia's property group Balsts says Riga flat prices have fallen 56pc since mid-2007. The economy contracted 18pc annualised over the last six months.
Leaked documents reveal – despite a blizzard of lies by EU and Latvian officials – that the International Monetary Fund called for devaluation as part of a €7.5bn joint rescue for Latvia. Such adjustments are crucial in IMF deals. They allow countries to claw their way back to health without suffering perma-slump.
This was blocked by Brussels – purportedly because mortgage debt in euros and Swiss francs precluded that option. IMF documents dispute this. A society is being sacrificed on the altar of the EMU project.
Latvians have company. Dublin expects Ireland's economy to contract 4pc this year. The deficit will reach 12pc of GDP by 2010 on current policies. "This is not sustainable," said the treasury. Hence the draconian wage deflation now threatened by the Taoiseach.
The Celtic Tiger has faced the test bravely. No government in Europe has been so honest. It is a tragedy that sterling's crash should have compounded their woes at this moment. To cap it all, Dell is decamping to Poland with 4pc of GDP. Irish wages crept too high during the heady years when Euroland interest rates of 2pc so beguiled the nation.
Spain lost a million jobs in 2008. Madrid is bracing for 16pc unemployment by year's end.
Private economists fear 25pc before it is over. Spain's wage inflation has priced the workforce out of Europe's markets. EMU logic is wage deflation for year after year. With Spain's high debt levels, this is impossible.
Either Mr Zapatero stops the madness, or Spanish democracy will stop him. The left wing of his PSOE party is already peeling off, just as the French left is peeling off to fight "l'euro dictature capitaliste".
Italy's treasury awaits each bond auction with dread, wondering if can offload €200bn of debt this year. Spreads reached a fresh post-EMU high of 149 last week. The debt compound noose is tightening around Rome's throat. Italian journalists have begun to talk of Europe's "Tequila Crisis" – a new twist.
They mean that capital flight from Club Med could set off an unstoppable process.
Mexico's Tequila drama in 1994 was triggered by a combination of the Chiapas uprising, a current account haemorrhage, and bond jitters. The dollar-peso peg snapped when elites began moving money to US banks. The game was up within days.
Fixed exchange systems – and EMU is just a glorified version – rupture suddenly. Things can seem eerily calm for a long time. Politicians swear by the parity. Remember John Major's "soft-option" defiance days before the ERM blew apart in 1992? Or Philip Snowden's defence of sterling before a Royal Navy mutiny forced Britain off the Gold Standard in 1931.
Don't expect tremors before an earthquake – and there is no fault line of greater historic violence than the crunching plates where Latin Europe meets Teutonia.
Greece no longer dares sell long bonds to fund its debt. It sold €2.5bn last week at short rates, mostly 3-months and 6-months. This is a dangerous game. It stores up "roll-over risk" for later in the year. Hedge funds are circling.
Traders suspect that investors are dumping their Club Med and Irish debt immediately on the European Central Bank in "repo" actions.
In other words, the ECB is already providing a stealth bail-out for Europe's governments – though secrecy veils all.
An EU debt union is being created, in breach of EU law. Liabilities are being shifted quietly on to German taxpayers. What happens when Germany's hard-working citizens find out?
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4278642/Monetary-union-has-left-half-of-Europe-trapped-in-depression.html
By Ambrose Evans-PritchardLast Updated: 9:36AM GMT 18 Jan 2009
Comments 172 Comment on this article
Events are moving fast in Europe. The worst riots since the fall of Communism have swept the Baltics and the south Balkans. An incipient crisis is taking shape in the Club Med bond markets. S&P has cut Greek debt to near junk. Spanish, Portuguese, and Irish bonds are on negative watch.
Dublin has nationalised Anglo Irish Bank with its half-built folly on North Wall Quay and €73bn (£65bn) of liabilities, moving a step nearer the line where markets probe the solvency of the Irish state.
A great ring of EU states stretching from Eastern Europe down across Mare Nostrum to the Celtic fringe are either in a 1930s depression already or soon will be. Greece's social fabric is unravelling before the pain begins, which bodes ill.
Each is a victim of ill-judged economic policies foisted upon them by elites in thrall to Europe's monetary project – either in EMU or preparing to join – and each is trapped.
As UKIP leader Nigel Farage put it in a rare voice of dissent at the euro's 10th birthday triumph in Strasbourg, EMU-land has become a Völker-Kerker – a "prison of nations", to borrow from the Austro-Hungarian Empire.
This week, Riga's cobbled streets became a war zone. Protesters armed with blocks of ice smashed up Latvia's finance ministry. Hundreds tried to force their way into the legislature, enraged by austerity cuts.
"Trust in the state's authority and officials has fallen catastrophically," said President Valdis Zatlers, who called for the dissolution of parliament.
In Lithuania, riot police fired rubber-bullets on a trade union march. Dogs chased stragglers into the Vilnia river. A demonstration outside Bulgaria's parliament in Sofia turned violent on Wednesday.
These three states are all members of the Exchange Rate Mechanism (ERM2), the euro's pre-detention cell. They must join. It is written into their EU contracts.
The result of subjecting ex-Soviet catch-up economies to the monetary regime of the leaden West has been massive overheating. Latvia's current account deficit hit 26pc of GDP. Riga property prices surpassed Berlin.
The inevitable bust is proving epic. Latvia's property group Balsts says Riga flat prices have fallen 56pc since mid-2007. The economy contracted 18pc annualised over the last six months.
Leaked documents reveal – despite a blizzard of lies by EU and Latvian officials – that the International Monetary Fund called for devaluation as part of a €7.5bn joint rescue for Latvia. Such adjustments are crucial in IMF deals. They allow countries to claw their way back to health without suffering perma-slump.
This was blocked by Brussels – purportedly because mortgage debt in euros and Swiss francs precluded that option. IMF documents dispute this. A society is being sacrificed on the altar of the EMU project.
Latvians have company. Dublin expects Ireland's economy to contract 4pc this year. The deficit will reach 12pc of GDP by 2010 on current policies. "This is not sustainable," said the treasury. Hence the draconian wage deflation now threatened by the Taoiseach.
The Celtic Tiger has faced the test bravely. No government in Europe has been so honest. It is a tragedy that sterling's crash should have compounded their woes at this moment. To cap it all, Dell is decamping to Poland with 4pc of GDP. Irish wages crept too high during the heady years when Euroland interest rates of 2pc so beguiled the nation.
Spain lost a million jobs in 2008. Madrid is bracing for 16pc unemployment by year's end.
Private economists fear 25pc before it is over. Spain's wage inflation has priced the workforce out of Europe's markets. EMU logic is wage deflation for year after year. With Spain's high debt levels, this is impossible.
Either Mr Zapatero stops the madness, or Spanish democracy will stop him. The left wing of his PSOE party is already peeling off, just as the French left is peeling off to fight "l'euro dictature capitaliste".
Italy's treasury awaits each bond auction with dread, wondering if can offload €200bn of debt this year. Spreads reached a fresh post-EMU high of 149 last week. The debt compound noose is tightening around Rome's throat. Italian journalists have begun to talk of Europe's "Tequila Crisis" – a new twist.
They mean that capital flight from Club Med could set off an unstoppable process.
Mexico's Tequila drama in 1994 was triggered by a combination of the Chiapas uprising, a current account haemorrhage, and bond jitters. The dollar-peso peg snapped when elites began moving money to US banks. The game was up within days.
Fixed exchange systems – and EMU is just a glorified version – rupture suddenly. Things can seem eerily calm for a long time. Politicians swear by the parity. Remember John Major's "soft-option" defiance days before the ERM blew apart in 1992? Or Philip Snowden's defence of sterling before a Royal Navy mutiny forced Britain off the Gold Standard in 1931.
Don't expect tremors before an earthquake – and there is no fault line of greater historic violence than the crunching plates where Latin Europe meets Teutonia.
Greece no longer dares sell long bonds to fund its debt. It sold €2.5bn last week at short rates, mostly 3-months and 6-months. This is a dangerous game. It stores up "roll-over risk" for later in the year. Hedge funds are circling.
Traders suspect that investors are dumping their Club Med and Irish debt immediately on the European Central Bank in "repo" actions.
In other words, the ECB is already providing a stealth bail-out for Europe's governments – though secrecy veils all.
An EU debt union is being created, in breach of EU law. Liabilities are being shifted quietly on to German taxpayers. What happens when Germany's hard-working citizens find out?
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4278642/Monetary-union-has-left-half-of-Europe-trapped-in-depression.html
UK Banks bailout
Banks bailout: Bonds tumble as Government admits no cap on taxpayer risk
Bank shares plunged and Government bonds tumbled after Gordon Brown announced plans to insure lenders for losses on bad loans which could amount to billions of pounds.
By James Kirkup Last Updated: 2:07PM GMT 19 Jan 2009
Billions of pounds of our money is to be poured into Britain's ailing banks. Gordon Brown says desperate measures are needed.
The Prime Minister announced a scheme to allow banks to exchange cash or shares for a Government guarantee on their "toxic" debts, transferring any losses they suffer from the banks to the taxpayer.
But the Government has conceded that it can't estimate how much taxpayers' money will be on the line in the latest bank assistance package.
UK bond prices fell sharply as the financial markets digested the prospect of further Government borrowing. Bank stocks also tumbled with shares of Royal Bank of Scotland losing more than half their value. Lloyds, Barclays and HSBC also fell.
Ministers say the new package, which comes only three months after another £500 billion bailout, is vital to restore bank lending and help companies get credit and stay in business.
At a press conference in Downing Street to announce the package Mr Brown said that "people are right to be angry" about what he called irresponsible lending by banks.
Mr Brown also reacted angrily to suggestions that he was handing a "blank cheque" to the banks by offering to protect them against the consequences of that lending.
He said: "You are completely misunderstanding this to suggest this is a blank cheque. Quite the opposite. It is for the Treasury to decide, after an analysis, what the insurance will be."
But he admitted that ministers have not yet set any upper limit on the value of loans they support or the level of risk taxpayers will bear.
As part of the rescue package, the taxpayer has taken an even bigger stake in Royal Bank of Scotland, which has today announced losses of over £20 billion – the biggest loss in British corporate history.
The Government is also offering to increase its stake in Lloyds Banking Group. The state could even take shares in Barclays and HSBC in exchange for insuring their loans in its new Asset Protection Scheme.
HSBC said that it had not sought capital support from the UK Government "and cannot envisage circumstances where such action would be necessary".
It is the second rescue package in three months, which is aimed at getting the banks to lend to businesses and homeowners.
If it fails, banking experts say the only option left for Mr Brown will be full nationalisation of the banking system.
In a statement to the City, the Treasury said the Asset Protection Scheme scheme is expected to operate for "not less than 5 years."
"To increase confidence and capacity to lend, and in turn to support the recovery of the economy the Government is today announcing its intention to offer protection on those assets most affected by the current economic conditions," the Treasury statement said.
In the first instance it will be open to the major British banks, but the Treasury said it was possible that insurance will ultimately be extended to the British subsidiaries of foreign banks.
The Government also announced:
A plan to make government bonds available to banks to support £100 million of loans for some home owners and small businesses, as recommended by Sir James Crosby, former HBOS chief executive;
An extension until the end of this year of the Government's £250 billion Credit Guarantee Scheme to support lending between banks;
An expansion of the Bank of England's £200 billion Special Liquidity Scheme. The Bank will now accept consumers' car loans in exchange for Government bonds, a move intended to support the failing motor industry;
Northern Rock, the state-owned bank, will be told to offer more home loans, reversing previous instructions for it to get rid of mortgage customers by charging punitive rates of interest.
Despite £500 billion having been pledged for a rescue package in October, the banks are not lending at the levels ministers and business groups say are needed for the economy to function normally. As a result, the country is mired in a recession which experts are forecasting could be the worst for generations.
The Chancellor, Alistair Darling, also suggested that the bailout would be accompanied by new measures to control the banks' behaviour
He said: "It's quite clear in the world we're living in just now we do need to look again at the way we supervise and regulate these banks."
George Osborne, the Tory shadow chancellor, said the Government had no choice but to help the banks again because the October package had "failed."
He said: "I don't like the idea but it's a question of what options there are."
Mr Osborne added that strict scrutiny must be applied to bank assets to protect taxpayers' interests. "We need to know exactly what the Government is proposing to insure. We need a full audit, an independent audit," he said.
The centrepiece of today's package is to provide Government guarantees against losses that the banks might incur on loans that have now turned sour amid collapsing house prices and a shrinking global economy.
The banks will pay a "significant" fee to the Government for each loan they insure.
They will be able to pay that fee in either cash or shares. That could open the way to the state holding stakes in all of Britain's four biggest banks for the first time.
Shares in Barclays fell by more than 20 per cent on Friday amid City speculation that the bank is exposed to huge losses. It tried to calm that speculation by pre-announcing significant profits, but its shares are likely to come under fresh pressure.
In the October package, ministers offered Barclays billions of pounds in new capital, but – unlike RBS and Lloyds – Barclays rejected the offer and chose to raise new funds from Gulf investors.
Treasury sources said the proposal to insure Barclays's loans in exchange for shares would effectively repeat that offer. Some believe that the bank will find it almost impossible to reject state help this time.
Despite raising the prospect of increased government holdings in the banks, ministers insist that outright nationalisation remains a last resort.
The loan insurance scheme is being proposed as an alternative to the creation of a state-controlled "bad bank" to house the toxic assets.
Officials say the insurance plan avoids some of the complexity and delay involved in valuing and buying the assets from the banks.
But it means the Government cannot know exactly what losses it would incur if the loans it insures go bad.
As well as paying substantial fees in cash and shares for the loan insurance, banks will also have to sign "contractual agreements" with the Treasury about their future lending, committing them to increase lending and focus new credit on British customers ahead of foreign borrowers.
Separately, the Government could increase its stake in RBS and the Lloyds Banking Group, potentially making the taxpayer the majority shareholder in Lloyds.
In October, some of the state's holding in RBS and Lloyds was taken in the form of preference shares, holdings that committed them to paying hundreds of millions of pounds to the taxpayer before they did anything else.
The banks say those obligations have shackled them and forced them to divert money that could otherwise have been used to lend.
In exchange for reducing what it takes from the preference shares, the Government wants more normal shares, effectively diluting the value of private investors' holdings and increasing state influence over RBS and Lloyds.
RBS has accepted the deal, taking the state's ownership to 70 per cent.
Lloyds is more reluctant to accept the offer, which could see the Government share exceed 50 per cent.
Bank shares plunged and Government bonds tumbled after Gordon Brown announced plans to insure lenders for losses on bad loans which could amount to billions of pounds.
By James Kirkup Last Updated: 2:07PM GMT 19 Jan 2009
Billions of pounds of our money is to be poured into Britain's ailing banks. Gordon Brown says desperate measures are needed.
The Prime Minister announced a scheme to allow banks to exchange cash or shares for a Government guarantee on their "toxic" debts, transferring any losses they suffer from the banks to the taxpayer.
But the Government has conceded that it can't estimate how much taxpayers' money will be on the line in the latest bank assistance package.
UK bond prices fell sharply as the financial markets digested the prospect of further Government borrowing. Bank stocks also tumbled with shares of Royal Bank of Scotland losing more than half their value. Lloyds, Barclays and HSBC also fell.
Ministers say the new package, which comes only three months after another £500 billion bailout, is vital to restore bank lending and help companies get credit and stay in business.
At a press conference in Downing Street to announce the package Mr Brown said that "people are right to be angry" about what he called irresponsible lending by banks.
Mr Brown also reacted angrily to suggestions that he was handing a "blank cheque" to the banks by offering to protect them against the consequences of that lending.
He said: "You are completely misunderstanding this to suggest this is a blank cheque. Quite the opposite. It is for the Treasury to decide, after an analysis, what the insurance will be."
But he admitted that ministers have not yet set any upper limit on the value of loans they support or the level of risk taxpayers will bear.
As part of the rescue package, the taxpayer has taken an even bigger stake in Royal Bank of Scotland, which has today announced losses of over £20 billion – the biggest loss in British corporate history.
The Government is also offering to increase its stake in Lloyds Banking Group. The state could even take shares in Barclays and HSBC in exchange for insuring their loans in its new Asset Protection Scheme.
HSBC said that it had not sought capital support from the UK Government "and cannot envisage circumstances where such action would be necessary".
It is the second rescue package in three months, which is aimed at getting the banks to lend to businesses and homeowners.
If it fails, banking experts say the only option left for Mr Brown will be full nationalisation of the banking system.
In a statement to the City, the Treasury said the Asset Protection Scheme scheme is expected to operate for "not less than 5 years."
"To increase confidence and capacity to lend, and in turn to support the recovery of the economy the Government is today announcing its intention to offer protection on those assets most affected by the current economic conditions," the Treasury statement said.
In the first instance it will be open to the major British banks, but the Treasury said it was possible that insurance will ultimately be extended to the British subsidiaries of foreign banks.
The Government also announced:
A plan to make government bonds available to banks to support £100 million of loans for some home owners and small businesses, as recommended by Sir James Crosby, former HBOS chief executive;
An extension until the end of this year of the Government's £250 billion Credit Guarantee Scheme to support lending between banks;
An expansion of the Bank of England's £200 billion Special Liquidity Scheme. The Bank will now accept consumers' car loans in exchange for Government bonds, a move intended to support the failing motor industry;
Northern Rock, the state-owned bank, will be told to offer more home loans, reversing previous instructions for it to get rid of mortgage customers by charging punitive rates of interest.
Despite £500 billion having been pledged for a rescue package in October, the banks are not lending at the levels ministers and business groups say are needed for the economy to function normally. As a result, the country is mired in a recession which experts are forecasting could be the worst for generations.
The Chancellor, Alistair Darling, also suggested that the bailout would be accompanied by new measures to control the banks' behaviour
He said: "It's quite clear in the world we're living in just now we do need to look again at the way we supervise and regulate these banks."
George Osborne, the Tory shadow chancellor, said the Government had no choice but to help the banks again because the October package had "failed."
He said: "I don't like the idea but it's a question of what options there are."
Mr Osborne added that strict scrutiny must be applied to bank assets to protect taxpayers' interests. "We need to know exactly what the Government is proposing to insure. We need a full audit, an independent audit," he said.
The centrepiece of today's package is to provide Government guarantees against losses that the banks might incur on loans that have now turned sour amid collapsing house prices and a shrinking global economy.
The banks will pay a "significant" fee to the Government for each loan they insure.
They will be able to pay that fee in either cash or shares. That could open the way to the state holding stakes in all of Britain's four biggest banks for the first time.
Shares in Barclays fell by more than 20 per cent on Friday amid City speculation that the bank is exposed to huge losses. It tried to calm that speculation by pre-announcing significant profits, but its shares are likely to come under fresh pressure.
In the October package, ministers offered Barclays billions of pounds in new capital, but – unlike RBS and Lloyds – Barclays rejected the offer and chose to raise new funds from Gulf investors.
Treasury sources said the proposal to insure Barclays's loans in exchange for shares would effectively repeat that offer. Some believe that the bank will find it almost impossible to reject state help this time.
Despite raising the prospect of increased government holdings in the banks, ministers insist that outright nationalisation remains a last resort.
The loan insurance scheme is being proposed as an alternative to the creation of a state-controlled "bad bank" to house the toxic assets.
Officials say the insurance plan avoids some of the complexity and delay involved in valuing and buying the assets from the banks.
But it means the Government cannot know exactly what losses it would incur if the loans it insures go bad.
As well as paying substantial fees in cash and shares for the loan insurance, banks will also have to sign "contractual agreements" with the Treasury about their future lending, committing them to increase lending and focus new credit on British customers ahead of foreign borrowers.
Separately, the Government could increase its stake in RBS and the Lloyds Banking Group, potentially making the taxpayer the majority shareholder in Lloyds.
In October, some of the state's holding in RBS and Lloyds was taken in the form of preference shares, holdings that committed them to paying hundreds of millions of pounds to the taxpayer before they did anything else.
The banks say those obligations have shackled them and forced them to divert money that could otherwise have been used to lend.
In exchange for reducing what it takes from the preference shares, the Government wants more normal shares, effectively diluting the value of private investors' holdings and increasing state influence over RBS and Lloyds.
RBS has accepted the deal, taking the state's ownership to 70 per cent.
Lloyds is more reluctant to accept the offer, which could see the Government share exceed 50 per cent.
Monday 19 January 2009
Understanding Risk and Return
Understanding Risk and Return
To get profit without risk, experience without danger, and reward without work, is as impossible as it is to live without being born. – A.P. Gouthev
Two key concepts provide the foundation for the field of finance.
1. A dollar today is worth more than a dollar tomorrow – this is the time value of money.
2. A safe dollar is worth more than a risk dollar.
The trade-off between risk and return is the principal theme in the investment decision.
RISK AVERSE: Most people are risk averse. This does not mean, however, they will not take a risk. It means they take a risk only when they expect to be rewarded for taking it. People have different degrees of risk aversion; some are more willing to take a chance than are others.
RISK NEUTRAL: Someone who is indifferent to risk is risk neutral.
RISK SEEKER: Someone who actively seeks out risky situations (a gambler) is a risk seeker.
To get profit without risk, experience without danger, and reward without work, is as impossible as it is to live without being born. – A.P. Gouthev
Two key concepts provide the foundation for the field of finance.
1. A dollar today is worth more than a dollar tomorrow – this is the time value of money.
2. A safe dollar is worth more than a risk dollar.
The trade-off between risk and return is the principal theme in the investment decision.
RISK AVERSE: Most people are risk averse. This does not mean, however, they will not take a risk. It means they take a risk only when they expect to be rewarded for taking it. People have different degrees of risk aversion; some are more willing to take a chance than are others.
RISK NEUTRAL: Someone who is indifferent to risk is risk neutral.
RISK SEEKER: Someone who actively seeks out risky situations (a gambler) is a risk seeker.
- For small amounts of money, most people enjoy the thrill of a long-shot wager.
- For more significant sums, though, the tendency to risk aversion is nearly universal.
RETURN: People invest because they hope to get a return from their investment. Return is the good stuff that makes people feel better or improves their standard of living.
RISK: Risk is the bad stuff a risk averse person seeks to avoid. It is a fact of investment life and is unavoidable for anyone who seeks more than a trivial rate of return. Note that risk is a “four letter word.”
Sunday 18 January 2009
Financial crisis: Everything you need to know
Financial crisis: Everything you need to know about the meltdown but were afraid to ask.
Who got us into this mess, what did they think they were doing, and how do we get out of it?
By Emma SimonLast Updated: 4:04PM BST 13 Oct 2008
A trader in Frankfurt reacts to the latest turmoil in the markets Photo: REUTERS
Q: How have the banks got into this situation?
A: The problems started with the now notorious sub-prime mortgages in America. Banks granted home loans to people who had little chance of repaying them, but then sold these debts on to other banks, often packaged up with other less risky debts. Invariably these debts, and other high-risk securities, were sold on again. But then it became apparent that some of these loans would not be repaid, and banks were left holding "toxic'' debts.
More worryingly, banks were now unsure which institutions were most exposed to these bad investments, and drew back from lending to each other, amid concerns that the money would not be repaid if a bank failed.
The collapse of Lehman Brothers, the US investment bank, last month intensified this fear and effectively paralysed global money markets. Since then, central banks and governments have been hatching plans to restore liquidity and confidence in the banking system, so oiling the wheels of capitalism again.
Q: Why do banks need to lend to and borrow from each other?
A: Most people assume that banks work on that old-fashioned notion of only lending out the money taken in on deposit. But this rarely happens today. The money taken in as savings is invested in the money markets - in other words, lent to other banks for the best possible rate. Banks then borrow from these same markets and sell on this money, at a premium, to customers in the form of mortgages and personal loans.
If banks are unable to borrow from each other, and from these money markets, then they are unlikely to be able to offer competitive borrowing deals for consumers, and we may have to go back to the days when mortgages were "rationed'' and depended solely on deposits.
This also explains why banks would be unable to repay savers if these decided en masse to empty their accounts. Such a run on a bank can drive a profitable institution to the brink, potentially taking savers' money with it.
Q: So is my money safe in the bank?
A: Before Northern Rock collapsed a year ago, few people would have worried about the safety of their money in a British bank or building society. But with Northern Rock, Bradford & Bingley, HBOS and now Icesave running into difficulties, the security of our savings has become more important than the interest rates they earn.
Despite these problems, savers have yet to lose a penny. The closest savers have come to losing out has been with Icesave, a subsidiary of the Icelandic Landsbanki Bank. British savers saw their money frozen, and there were fears that the Icelandic compensation scheme would not pay out. But Alistair Darling, the Chancellor, confirmed that the Government will reimburse savers in full through the Financial Services Compensation Scheme (FSCS).
Q: Are all savings guaranteed?
A: No. The Government has been careful not to offer a blank cheque underwriting the nation's savings in full. It was only able to make this pledge to Icesave's UK savers because of the "exceptional'' economic circumstances.
Given the market volatility, savers should ensure that they have no more than £ 50,000 with any one bank, as this is the maximum that is guaranteed to be protected under the FSCS. This limit often applies to all brands offered by one banking group.
Take care with foreign-owned institutions, as very often you will have to reclaim the first euro20,877 (£ 16,500) from an overseas compensation scheme. If you are nervous, then stick with the UK, where at least as a vote-wielding citizen your money should be the top priority for the authorities.
Q: Why are share prices still falling? Has the Government bail-out failed?
A: Last week the Government unveiled a £ 500 billion rescue package for British banks. This trumped the US rescue plan in both size and scope, pumping liquidity and capital into our struggling banking system.
Although the plan is complex, at its core are three main policies:
But these radical measures failed to stem the stock-market rout, and bank share prices continued to head south.
This does not necessarily mean the bail-out has failed. The Government will argue that this is a long-term plan to put the banks on a firmer financial footing. Yesterday's pledge by G7 finance ministers to pump public money into banks to prevent their collapse could also translate into a recovery in share prices.
Q: So what is spooking investors? Is there much worse news to come?
A: It isn't just a lack of confidence in the banks that is driving share prices downwards. Fears of a recession are causing shares to be sold off in many companies. In a recession, consumer spending, already down, will dip further. This will affect companies' profits.
There are also fears that recession and unemployment could lead to more toxic debt. It is not just sub-prime mortgages: credit card debt and car finance deals may also have to be written off if consumers can no longer meet repayments.
Q: The credit crunch has been around for a year - why did it get so much worse this week?
A: Panic is breeding panic. The fact that the much-lauded rescue plans, coupled with a global interest-rate cut, have done little to staunch the rout may have raised the fear factor, as it is clear that Government and banks have little else to throw at the problem.
Q: The Government pumped money into the system before. Why didn't this work, and why do they think more money now will do the trick?
A: The Government already had a £ 100 billion Special Liquidity Scheme in place which allowed banks to borrow from the Bank of England. This has been doubled in the hope that, by giving banks access to more money, they will start lending to consumers again.
Q: This is an extraordinary amount of money. Are we going to have to pay more tax as a result?
A: This plan puts taxpayers' money at risk, but will not necessarily mean they lose out. If the plan revives banking fortunes then the Government could make money for taxpayers by having bought into the banks at such a low ebb. The money lent to them through the liquidity scheme will also have to be paid back. But if it doesn't work, we could be paying for generations, through higher taxes or cuts in public spending.
Q: Why should we pay more tax to save the banks? They got themselves into this mess.
A: It is not hard to see why this rescue package has been so controversial. Many people wince at public money being used to bail out an industry that has shown little restraint in pay and bonuses. But without this help, more banks would fail, causing misery for all. Bank collapses could put savers' money at risk; reimbursing that could cost the taxpayer far more.
Q: How far can share prices fall?
A: This is the billion-dollar question. Following the bubble in technology stocks in the late 1990s, the FTSE 100 share price index peaked at 6,950 in December 1999, before falling to a low of 3,287 in March 2003. We are still marginally above this point. However, the factors driving this crash are different and prices could head still lower.
Q: Is it too late to get out now?
A: If you have left it this late to get out of the market, it is probably too late and you are just crystallising large losses. Experts' advice is to wait for recovery, which will - eventually - come.
Q: Will shares just bounce back?
A: We have no way of knowing what the recovery will be like. In the 2003 crash, share prices recovered swiftly. But many experts are drawing parallels with the 1930s or 1970s, when recession stalled a recovery for years. There is also the salutary lesson of Japan. In December 1989, the Nikkei index peaked at 39,000 before suffering a catastrophic loss, sparked by a banking crisis. Today, almost 20 years later, it stands at just about 8,000.
Q: I don't own shares. Why should I care about the stock market?
A: You probably have investments that are exposed to equities, be it a pension, unit-linked savings, an endowment, trust fund or savings bond. Their value will have fallen by roughly a third over the past year, depending on what shares your plan is invested in. A stock-market collapse will also deepen a recession, resulting in job cuts.
Q: Why is my mortgage rate still high when base rates have been cut?
A: Many British banks have passed on this interest-rate cut, but there have been exceptions, including Abbey, Nationwide and HSBC. Most banks are not re-pricing new mortgage deals, because these are largely based on Libor - the inter-bank lending rate - and this has remained stubbornly high.
http://www.telegraph.co.uk/finance/personalfinance/3187716/Financial-crisis-Everything-you-need-to-know-about-the-meltdown-but-were-afraid-to-ask..html
Who got us into this mess, what did they think they were doing, and how do we get out of it?
By Emma SimonLast Updated: 4:04PM BST 13 Oct 2008
A trader in Frankfurt reacts to the latest turmoil in the markets Photo: REUTERS
Q: How have the banks got into this situation?
A: The problems started with the now notorious sub-prime mortgages in America. Banks granted home loans to people who had little chance of repaying them, but then sold these debts on to other banks, often packaged up with other less risky debts. Invariably these debts, and other high-risk securities, were sold on again. But then it became apparent that some of these loans would not be repaid, and banks were left holding "toxic'' debts.
More worryingly, banks were now unsure which institutions were most exposed to these bad investments, and drew back from lending to each other, amid concerns that the money would not be repaid if a bank failed.
The collapse of Lehman Brothers, the US investment bank, last month intensified this fear and effectively paralysed global money markets. Since then, central banks and governments have been hatching plans to restore liquidity and confidence in the banking system, so oiling the wheels of capitalism again.
Q: Why do banks need to lend to and borrow from each other?
A: Most people assume that banks work on that old-fashioned notion of only lending out the money taken in on deposit. But this rarely happens today. The money taken in as savings is invested in the money markets - in other words, lent to other banks for the best possible rate. Banks then borrow from these same markets and sell on this money, at a premium, to customers in the form of mortgages and personal loans.
If banks are unable to borrow from each other, and from these money markets, then they are unlikely to be able to offer competitive borrowing deals for consumers, and we may have to go back to the days when mortgages were "rationed'' and depended solely on deposits.
This also explains why banks would be unable to repay savers if these decided en masse to empty their accounts. Such a run on a bank can drive a profitable institution to the brink, potentially taking savers' money with it.
Q: So is my money safe in the bank?
A: Before Northern Rock collapsed a year ago, few people would have worried about the safety of their money in a British bank or building society. But with Northern Rock, Bradford & Bingley, HBOS and now Icesave running into difficulties, the security of our savings has become more important than the interest rates they earn.
Despite these problems, savers have yet to lose a penny. The closest savers have come to losing out has been with Icesave, a subsidiary of the Icelandic Landsbanki Bank. British savers saw their money frozen, and there were fears that the Icelandic compensation scheme would not pay out. But Alistair Darling, the Chancellor, confirmed that the Government will reimburse savers in full through the Financial Services Compensation Scheme (FSCS).
Q: Are all savings guaranteed?
A: No. The Government has been careful not to offer a blank cheque underwriting the nation's savings in full. It was only able to make this pledge to Icesave's UK savers because of the "exceptional'' economic circumstances.
Given the market volatility, savers should ensure that they have no more than £ 50,000 with any one bank, as this is the maximum that is guaranteed to be protected under the FSCS. This limit often applies to all brands offered by one banking group.
Take care with foreign-owned institutions, as very often you will have to reclaim the first euro20,877 (£ 16,500) from an overseas compensation scheme. If you are nervous, then stick with the UK, where at least as a vote-wielding citizen your money should be the top priority for the authorities.
Q: Why are share prices still falling? Has the Government bail-out failed?
A: Last week the Government unveiled a £ 500 billion rescue package for British banks. This trumped the US rescue plan in both size and scope, pumping liquidity and capital into our struggling banking system.
Although the plan is complex, at its core are three main policies:
- to offer extended borrowing facilities so that banks can access funds from the Bank of England;
- to recapitalise banks by injecting money directly into them in exchange for a stake in the bank; and
- to guarantee all new debt issued by banks, effectively making their corporate bonds as safe as Government-backed gilts.
But these radical measures failed to stem the stock-market rout, and bank share prices continued to head south.
This does not necessarily mean the bail-out has failed. The Government will argue that this is a long-term plan to put the banks on a firmer financial footing. Yesterday's pledge by G7 finance ministers to pump public money into banks to prevent their collapse could also translate into a recovery in share prices.
Q: So what is spooking investors? Is there much worse news to come?
A: It isn't just a lack of confidence in the banks that is driving share prices downwards. Fears of a recession are causing shares to be sold off in many companies. In a recession, consumer spending, already down, will dip further. This will affect companies' profits.
There are also fears that recession and unemployment could lead to more toxic debt. It is not just sub-prime mortgages: credit card debt and car finance deals may also have to be written off if consumers can no longer meet repayments.
Q: The credit crunch has been around for a year - why did it get so much worse this week?
A: Panic is breeding panic. The fact that the much-lauded rescue plans, coupled with a global interest-rate cut, have done little to staunch the rout may have raised the fear factor, as it is clear that Government and banks have little else to throw at the problem.
Q: The Government pumped money into the system before. Why didn't this work, and why do they think more money now will do the trick?
A: The Government already had a £ 100 billion Special Liquidity Scheme in place which allowed banks to borrow from the Bank of England. This has been doubled in the hope that, by giving banks access to more money, they will start lending to consumers again.
Q: This is an extraordinary amount of money. Are we going to have to pay more tax as a result?
A: This plan puts taxpayers' money at risk, but will not necessarily mean they lose out. If the plan revives banking fortunes then the Government could make money for taxpayers by having bought into the banks at such a low ebb. The money lent to them through the liquidity scheme will also have to be paid back. But if it doesn't work, we could be paying for generations, through higher taxes or cuts in public spending.
Q: Why should we pay more tax to save the banks? They got themselves into this mess.
A: It is not hard to see why this rescue package has been so controversial. Many people wince at public money being used to bail out an industry that has shown little restraint in pay and bonuses. But without this help, more banks would fail, causing misery for all. Bank collapses could put savers' money at risk; reimbursing that could cost the taxpayer far more.
Q: How far can share prices fall?
A: This is the billion-dollar question. Following the bubble in technology stocks in the late 1990s, the FTSE 100 share price index peaked at 6,950 in December 1999, before falling to a low of 3,287 in March 2003. We are still marginally above this point. However, the factors driving this crash are different and prices could head still lower.
Q: Is it too late to get out now?
A: If you have left it this late to get out of the market, it is probably too late and you are just crystallising large losses. Experts' advice is to wait for recovery, which will - eventually - come.
Q: Will shares just bounce back?
A: We have no way of knowing what the recovery will be like. In the 2003 crash, share prices recovered swiftly. But many experts are drawing parallels with the 1930s or 1970s, when recession stalled a recovery for years. There is also the salutary lesson of Japan. In December 1989, the Nikkei index peaked at 39,000 before suffering a catastrophic loss, sparked by a banking crisis. Today, almost 20 years later, it stands at just about 8,000.
Q: I don't own shares. Why should I care about the stock market?
A: You probably have investments that are exposed to equities, be it a pension, unit-linked savings, an endowment, trust fund or savings bond. Their value will have fallen by roughly a third over the past year, depending on what shares your plan is invested in. A stock-market collapse will also deepen a recession, resulting in job cuts.
Q: Why is my mortgage rate still high when base rates have been cut?
A: Many British banks have passed on this interest-rate cut, but there have been exceptions, including Abbey, Nationwide and HSBC. Most banks are not re-pricing new mortgage deals, because these are largely based on Libor - the inter-bank lending rate - and this has remained stubbornly high.
http://www.telegraph.co.uk/finance/personalfinance/3187716/Financial-crisis-Everything-you-need-to-know-about-the-meltdown-but-were-afraid-to-ask..html
The rescue has failed: it's time to fess up, reboot and start again
The rescue has failed: it's time to fess up, reboot and start again
Last Updated: 9:40AM GMT 18 Jan 2009
Comments 9 | Comment on this article
It's official. Government policy isn't working. As bank shares collapse amid renewed carnage on global markets, we now know the worst isn't over.
This crisis just entered a whole new phase. Gordon Brown's "rescue plan" lies in tatters. Perhaps now the Prime Minister – and his counterparts across the Western world – will do what needs to be done.
Regular readers know what's coming next. I've been writing the same thing for months. But I make no apologies – for this ghastly episode will only end once senior bank executives are forced, under threat of custodial sentence, to FULLY DISCLOSE to one another and the authorities, on the basis of all available evidence, the extent of their sub-prime liabilities.
I accept that's not easy. The toxic debts have been sliced, diced and securitised – then sold on many times. Millions of trades must be unravelled, often across international borders.
But this onerous task must be done. Then the losses must be written-off. Only after such purging will the banks begin to rebuild mutual trust – allowing the interbank market to reboot, so restoring the credit lines that are so vital to the broader economy. And all this needs to happen BEFORE more public money is spent recapitalising our banking sector.
I know what I'm saying is drastic. But this is a drastic situation. In the UK and US, in particular, the banks aren't playing ball. They think they're more powerful than our elected officials, and for the last six months they have been getting away with hiding losses and burying mistakes while screwing many billions of pounds out of taxpayers.
Look at the cause of this latest spasm. Opposition politicians point to the Government's decision to lift the ban on short-selling – allowing traders to pile pressure on bank stock. That misses the bigger picture.
Bank shares collapsed on Friday because of renewed fears that said banks have simply enormous liabilities on their books that they're still trying to hide.
In the US, Citigroup, Bank of America and Merrill Lynch unveiled a $25bn combined loss for the final quarter of 2008. But what was really shocking was that $15bn was sustained at Merrill Lynch – and the Bank of America, which bought the brokerage last year, didn't even know.
In a bid to save his job, Ken Lewis, Bank of America's boss, admitted he hadn't foreseen such a "significant deterioration" in Merrill's finances. But his words lifted the lid on the extent to which financial institutions are disguising the true state of their balance sheets – even to their own parent companies.
No wonder rumours then swirled of vast buried losses at Barclays and Royal Bank of Scotland. No wonder their prices collapsed. And such fears will fester and keep bursting to the surface until our banks "fess it all up" – and a credible number is put on potential losses at each of our major banks.
Yes, those numbers will be horrific. Yes, bank shares will be hit once more. But until we do the maths and swallow the write-offs, the rumours will continue and trust will remain elusive – to say nothing of long-term financial stability.
There is much talk of Franklin D Roosevelt. Trying to justify big pork-barrel spending, and yet more government borrowing, politicians on both sides of the Atlantic are employing the rhetoric of the depression-era President's New Deal.
One important lesson we can learn from FDR is to restore the Glass-Steagall firewall he erected between commercial and investment banking – so foolishly removed by the "bankers-turned-public servants" who dominated Bill Clinton's administration in the 1990s and who are now back, in the Obama fold.
But we may now even need to revisit America's 1933 Emergency Banking Act – closing our banks for a period, flooding them with government inspectors, killing off the technically insolvent and reorganising those strong enough to survive.
As if all this renewed banking angst wasn't enough, yet another fear is now stalking international capital markets. Last week, any remaining hope the eurozone had escaped the worst of this crisis was blown out of the water. Economic sentiment is now at a post-war low. Even the European Central Bank, admirably restrained until now, could resist the political pressure no longer and cut its interest rate to 2pc.
This column has long questioned the eurozone's long-term survival. Now global markets are doing the same. At the start of last year, the average 10-year government bond yield among the weaker member states (Portugal, Greece, Spain, Ireland and Italy) was just 25 basis points above the comparable number in Germany. That spread is now six times bigger.
Credit default swaps (the cost of insuring against a government default) among the most feckless eurozone members have reached Latin American levels. Would French and German taxpayers bail out another eurozone member? The longer this crisis goes on, the larger that incendiary question looms.
Oil prices: The complete Q&A
Oil prices: The complete Q&A
Last Updated: 12:39AM BST 29 May 2008
This article was released at the time when oil price was US $130 a barrel.
http://www.telegraph.co.uk/finance/newsbysector/energy/2790667/Oil-prices-The-complete-QandampA.html
Paul Mortimer Lee, global head of market economics at BNP, and strategist Dominic Bryant explains why the oil price matters to us all.
Oil price Q&A:
Who are the winners and losers?
Who consumes all the oil?
Why is the oil price spiking now?
Where is the oil price going?
Is there really a shortage of supply?
What are oil futures and how are they traded?
Who are the winners and losers?
Who consumes all the oil?
Why is the oil price spiking now?
Where is the oil price going?
Is there really a shortage of supply?
What are oil futures and how are they traded?
Oil price comment:
Alan Duncan: Asking Opec to solve the oil crisis misses the burning point
Liam Halligan: $100-plus oil will be here for years as China motors ahead
Louise Armitstead: Slick investors strike riches as they cash in on peak oil
Mark Kleinman: Credit crisis was crude compared with this oil price surge
Dan Roberts: Cheap oil is history. But why?
Alan Duncan: Asking Opec to solve the oil crisis misses the burning point
Liam Halligan: $100-plus oil will be here for years as China motors ahead
Louise Armitstead: Slick investors strike riches as they cash in on peak oil
Mark Kleinman: Credit crisis was crude compared with this oil price surge
Dan Roberts: Cheap oil is history. But why?
Going for gold? (Jan 2008 article)
Record breakers: gold and oil prices reached record highs as alarms sounded on inflationGoing for gold?
Last Updated: 1:27AM GMT 23 Jan 2008
The price of crude oil and gold smashed through key milestones this week, prompting investors to consider whether now is the time to take profits, writes Myra Butterworth
Crude oil gushes to historic $100 mark
Sterling slumps to four-year low against euro
Gold soared as analysts warned that inflation and high energy prices would remain a key threat on the economic agenda throughout 2008 - gold soared to $861.20 an ounce in New York on Wednesday, surpassing the levels last seen at the height of the inflation crisis in 1980.
Meanwhile, crude oil touched the $100 milestone for the first time in its history earlier this week, fuelled by jitters about geopolitical stability after the assassination of Benazir Bhutto and the unrest in Kenya.
But on being asked whether gold investors should now take profits, Ian Henderson, the highly regarded fund manager of JPM Natural Resources, was emphatic in his answer. "Absolutely not. It would have to get to $2,000 an ounce in real terms to reach an all time high and we are miles away from that," he said.
"People are bored with property – they don’t like to lose money and they don’t know whether Alistair Darling will bail them out from any banks that may fall into trouble. They get something different with gold which is a useful hedge against inflation and they can get a real feel for the value of their wealth."
Henderson has around 33 per cent of his Natural Resources fund in gold and precious metals and he reckons this could increase to around 40 per cent. He is also bullish on oil and energy related stocks in general. He is also finding opportunities in the less well known commodities such as cobalt, titanium and mineral sand but added that he was reducing his exposure to base metals such as copper and nickel. Here is what other leading experts had to say on whether now was the time to sell oil and gold. (Comment: Looks like Mr. Henderson was wrong in retrospect.)
Graham Birch, head of BlackRock's Natural Resources Team and manager of the Gold and General fund said: "Gold has started off in 2008 at an all time high in excess of $850 an ounce. This represents a continuation of the upward trend which has been in place since 1998. The last time that gold was at $850 an ounce was back in January 1980.
"The main positive factors which have been affecting gold recently include:
- the weakness of the US dollar,
- financial market turmoil and
- more than a whiff of inflation.
Tragically, political instability has also been a factor in the aftermath of Bhutto's assassination.
"On the supply side, production from the worlds' gold mines continued to decline and we believe it would take a significant further rise in the gold price to reverse this particular trend. Although in the short term jewellery demand may suffer some price related weakness, the long term outlook remains bright with emerging market wealth trends especially favourable.
"So, for 2008 we anticipate that the market patterns inherited from 2007 will remain in place. While gold rarely goes up in a straight line the general tenor of the market seems likely to remain favourable."
Mark Harris, head of funds of funds at New Star, said: "I believe the price of oil will remain higher than lower and should not fall below $80 a barrel even if we were to see a slight correction from the current $100 mark. The long-term trend for oil will be upward and on this basis oil majors and oil services companies now represent good value. (Comment: Another prediction that turned out to be wrong on hindsight.)
"The outlook for oil is positive for investors for several reasons. Demand is on the increase, primarily from expansionary markets such as China. At the same time, OPEC is showing a reluctance to increase supply, which suggests supply may be running near capacity. This will continue to put pressure on the price of oil. "I still hold gold within my New Star portfolios - CF Australian Natural Resources and Merrill Lynch Gold & General. However, I have recently trimmed my weightings in expectation of a dollar counter trend rally that may put pressure on gold in the short-term. I believe the long-term outlook for gold is still good and any short-term correction may represent a good buying opportunity, possibly around the $800 an ounce mark. (Comment: In retrospect, he predicted the dollar counter trend rally putting pressure on gold in the short-term correctly.)
"The long-term outlook for gold is positive because demand is on the increase, supply remains marginal and the cost of mining is increasing. These influences combined should ensure that prices remain high."
Alan Steel, of Alan Steel Asset Management, said: "The oil price has been on a tear since summer 2003. Economic factors suggest it is near it’s peak and it is likely to fall 50 per cent over the rest of this year and beyond. Private investors sentiment is showing excessively high optimistic levels, a strong sell signal. Gold is probably on a long term bull market which started in 2001. But it is overdue a breather and a fall - but not as big a fall as oil. Here too investors sentiment is showing excessive optimism, a sell signal. (Comment: In retrospect, this chap got his predictions correct.)
"I would buy large cap equity growth, such as Henderson Global Technology, Neptune US Opportunities, or back Emerging Markets such as Allianz, RCM Stars, BRIC. Currently I think it is too late for oil and gold. Perhaps look at gold again next year."
Mark Dampier, of asset managers Hargreaves Lansdown, said: "Forecasting the direction of any commodity is almost impossible. Indeed I would suggest you might as well consult Mystic Meg so investors should not get carried away. Remember too that existing portfolios are likely to have exposure to oil and possibly gold too so make sure you are not doubling up.
"The outlook for oil depends much on the outlook for the world economy. If the US, Europe and UK hit a hard recession, I would have thought the demand for oil would reduce and therefore so would the price. The difficulty this time round however is that emerging markets such as China and India are huge consumers of oil which has not happened in previous cycles. Indeed China and India account for something like 35 per cent of world oil imports.
"There is much talk about a decoupling of the Asian type economies and the developed world. However it is far too early to say whether this is really true and I suspect for the time being Asia depends as much on the US as the US depends on it.
"There is also much speculation in the oil price especially given political tensions which of course can suddenly reduce too. I believe oil prices may well come down but if they come down to say $80 a barrel, does it stop the investment case? I think not. The majority of analysts have been using something around $60-70 a barrel for their forecasts so oil needs to come down a long way to affect company profitability.
"How would I play the oil price? You can buy a general commodity fund such as JPMF Natural Resources. However, I would suggest you look at C F Junior Oils a specialised fund that invests in smaller oil producing companies. These are just the types of companies that are being taken over by the large multinationals such as Shell, BP and Exxon who are low on reserves but are cash rich. The fund is run by Angelos Damaskos, the son in law of legendary investor Jim Slater, and I hold it in my own portfolio too.
"I have been a bull of gold for about 18 months. The gold price has only just gone through its old high in 1980. The obvious signal when we look back for the purchase of gold was when the chancellor sold half the gold reserves at about $250 an ounce. While gold doesn’t have a big industrial use, its use in jewellery has grown when demand from places such as India and China have grown with it as these have become more prosperous. In addition gold is looked at as a final store of value, it can’t be defaulted on like a currency or a bond.
"Given both the geopolitical and economic tensions in the world today it is not surprising the gold price has been moving up. I think it has every chance to go over $1,000 an ounce and I hold the BlackRock Merrill Lynch Gold and General fund.
"It is noticeable however that smaller and mid size companies in this arena have not done so well so it may be worth investors looking at Ruffer Baker Steel Gold fund and an offshore fund known as Craton Capital who tend to invest in the smaller and mid size gold companies".
"On the supply side, production from the worlds' gold mines continued to decline and we believe it would take a significant further rise in the gold price to reverse this particular trend. Although in the short term jewellery demand may suffer some price related weakness, the long term outlook remains bright with emerging market wealth trends especially favourable.
"So, for 2008 we anticipate that the market patterns inherited from 2007 will remain in place. While gold rarely goes up in a straight line the general tenor of the market seems likely to remain favourable."
Mark Harris, head of funds of funds at New Star, said: "I believe the price of oil will remain higher than lower and should not fall below $80 a barrel even if we were to see a slight correction from the current $100 mark. The long-term trend for oil will be upward and on this basis oil majors and oil services companies now represent good value. (Comment: Another prediction that turned out to be wrong on hindsight.)
"The outlook for oil is positive for investors for several reasons. Demand is on the increase, primarily from expansionary markets such as China. At the same time, OPEC is showing a reluctance to increase supply, which suggests supply may be running near capacity. This will continue to put pressure on the price of oil. "I still hold gold within my New Star portfolios - CF Australian Natural Resources and Merrill Lynch Gold & General. However, I have recently trimmed my weightings in expectation of a dollar counter trend rally that may put pressure on gold in the short-term. I believe the long-term outlook for gold is still good and any short-term correction may represent a good buying opportunity, possibly around the $800 an ounce mark. (Comment: In retrospect, he predicted the dollar counter trend rally putting pressure on gold in the short-term correctly.)
"The long-term outlook for gold is positive because demand is on the increase, supply remains marginal and the cost of mining is increasing. These influences combined should ensure that prices remain high."
Alan Steel, of Alan Steel Asset Management, said: "The oil price has been on a tear since summer 2003. Economic factors suggest it is near it’s peak and it is likely to fall 50 per cent over the rest of this year and beyond. Private investors sentiment is showing excessively high optimistic levels, a strong sell signal. Gold is probably on a long term bull market which started in 2001. But it is overdue a breather and a fall - but not as big a fall as oil. Here too investors sentiment is showing excessive optimism, a sell signal. (Comment: In retrospect, this chap got his predictions correct.)
"I would buy large cap equity growth, such as Henderson Global Technology, Neptune US Opportunities, or back Emerging Markets such as Allianz, RCM Stars, BRIC. Currently I think it is too late for oil and gold. Perhaps look at gold again next year."
Mark Dampier, of asset managers Hargreaves Lansdown, said: "Forecasting the direction of any commodity is almost impossible. Indeed I would suggest you might as well consult Mystic Meg so investors should not get carried away. Remember too that existing portfolios are likely to have exposure to oil and possibly gold too so make sure you are not doubling up.
"The outlook for oil depends much on the outlook for the world economy. If the US, Europe and UK hit a hard recession, I would have thought the demand for oil would reduce and therefore so would the price. The difficulty this time round however is that emerging markets such as China and India are huge consumers of oil which has not happened in previous cycles. Indeed China and India account for something like 35 per cent of world oil imports.
"There is much talk about a decoupling of the Asian type economies and the developed world. However it is far too early to say whether this is really true and I suspect for the time being Asia depends as much on the US as the US depends on it.
"There is also much speculation in the oil price especially given political tensions which of course can suddenly reduce too. I believe oil prices may well come down but if they come down to say $80 a barrel, does it stop the investment case? I think not. The majority of analysts have been using something around $60-70 a barrel for their forecasts so oil needs to come down a long way to affect company profitability.
"How would I play the oil price? You can buy a general commodity fund such as JPMF Natural Resources. However, I would suggest you look at C F Junior Oils a specialised fund that invests in smaller oil producing companies. These are just the types of companies that are being taken over by the large multinationals such as Shell, BP and Exxon who are low on reserves but are cash rich. The fund is run by Angelos Damaskos, the son in law of legendary investor Jim Slater, and I hold it in my own portfolio too.
"I have been a bull of gold for about 18 months. The gold price has only just gone through its old high in 1980. The obvious signal when we look back for the purchase of gold was when the chancellor sold half the gold reserves at about $250 an ounce. While gold doesn’t have a big industrial use, its use in jewellery has grown when demand from places such as India and China have grown with it as these have become more prosperous. In addition gold is looked at as a final store of value, it can’t be defaulted on like a currency or a bond.
"Given both the geopolitical and economic tensions in the world today it is not surprising the gold price has been moving up. I think it has every chance to go over $1,000 an ounce and I hold the BlackRock Merrill Lynch Gold and General fund.
"It is noticeable however that smaller and mid size companies in this arena have not done so well so it may be worth investors looking at Ruffer Baker Steel Gold fund and an offshore fund known as Craton Capital who tend to invest in the smaller and mid size gold companies".
Gold often serves as a proxy for inflation fears
Bullion outshines record from 1980
By Ambrose Evans-Pritchard
Last Updated: 1:02AM GMT 04 Jan 2008
Gold has soared through resistance to touch an all-time high of $861.20 an ounce in New York, surpassing the record last seen at the height of the inflation crisis in 1980.
Crude oil gushes to historic $100 mark
Sterling slumps to four-year low against euro
Bulls seized the initiative as oil spiked briefly to $100 a barrel and the dollar buckled on bad manufacturing data in the US. The New Year surge - setting the tone for the year - may be viewed with some alarm by central banks, aware that gold often serves as a proxy for inflation fears.
Ross Norman, director of TheBullionDesk.com, said the world faces a new era of "peak gold" in which discoveries become rarer, leaving the market starved of the metal just as demand in China and emerging Asia begins to gather pace.
"Supply is declining despite a seven-year bull run," he said. "Production in South Africa is the lowest since the 1930s, and it is falling in Canada. As for the central banks, they are no longer quite so keen to part with their gold.
"New conduits such as ETFs have opened up, giving investors access to a market that used to be off radar. It has led to a slow, glacial flow of big money into gold that is immune to profit taking. On January 9, China will start trading gold futures in Shanghai," he said.
Mr Norman, the top forecaster for the London Bullion Market Association over the past four years, said gold would reach $1,200 an ounce this year.
Veteran gold traders say the metal is enjoying a perfect storm of inflation fears, geo-strategic jitters over Pakistan and mounting concerns that the dollar could lose its role as anchor of the international currency system as Mid-East and Asian states break their dollar pegs.
While there is no likelihood of a return to the gold standard, the metal could find a new role as a hard currency to buttress the dollar and the euro if the Bretton Woods II systems disintegrates any further.
Russia has already said it aims to raise the gold share of its huge foreign reserves to 10pc. There is widespread speculation that a number of central banks could soon start to accumulate gold, rather than rely too heavily on euro and sterling bonds as an alternative to the dollar.
http://www.telegraph.co.uk/finance/newsbysector/energy/2781954/Bullion-outshines-record-from-1980.html
By Ambrose Evans-Pritchard
Last Updated: 1:02AM GMT 04 Jan 2008
Gold has soared through resistance to touch an all-time high of $861.20 an ounce in New York, surpassing the record last seen at the height of the inflation crisis in 1980.
Crude oil gushes to historic $100 mark
Sterling slumps to four-year low against euro
Bulls seized the initiative as oil spiked briefly to $100 a barrel and the dollar buckled on bad manufacturing data in the US. The New Year surge - setting the tone for the year - may be viewed with some alarm by central banks, aware that gold often serves as a proxy for inflation fears.
Ross Norman, director of TheBullionDesk.com, said the world faces a new era of "peak gold" in which discoveries become rarer, leaving the market starved of the metal just as demand in China and emerging Asia begins to gather pace.
"Supply is declining despite a seven-year bull run," he said. "Production in South Africa is the lowest since the 1930s, and it is falling in Canada. As for the central banks, they are no longer quite so keen to part with their gold.
"New conduits such as ETFs have opened up, giving investors access to a market that used to be off radar. It has led to a slow, glacial flow of big money into gold that is immune to profit taking. On January 9, China will start trading gold futures in Shanghai," he said.
Mr Norman, the top forecaster for the London Bullion Market Association over the past four years, said gold would reach $1,200 an ounce this year.
Veteran gold traders say the metal is enjoying a perfect storm of inflation fears, geo-strategic jitters over Pakistan and mounting concerns that the dollar could lose its role as anchor of the international currency system as Mid-East and Asian states break their dollar pegs.
While there is no likelihood of a return to the gold standard, the metal could find a new role as a hard currency to buttress the dollar and the euro if the Bretton Woods II systems disintegrates any further.
Russia has already said it aims to raise the gold share of its huge foreign reserves to 10pc. There is widespread speculation that a number of central banks could soon start to accumulate gold, rather than rely too heavily on euro and sterling bonds as an alternative to the dollar.
http://www.telegraph.co.uk/finance/newsbysector/energy/2781954/Bullion-outshines-record-from-1980.html
Insight into world gold market
Gold surged in late trading to a 28-year peak of $824 an ounceOil, gold and euro surge to record prices
By Ambrose Evans-Pritchard
By Ambrose Evans-Pritchard
Last Updated: 1:09AM GMT 08 Nov 2007
Oil has rocketed to an all-time high of $97 a barrel in New York on fears of terrorist attacks on pipelines in the Middle East and falling crude inventories in the United States.
Comment: Stampede into gold comes with a wealth warning
Credit crunch crisis in full in our special section
In a day of wild movements across global markets, the dollar continued to plunge to all-time lows against European currencies while gold surged in late trading to a 28-year peak of $824 an ounce.
The euro reached $1.4568 and sterling broke through $2.09 for the first time since the early Thatcher era in 1981 as funds increased bets that the US Federal Reserve would soon have to cut interest rates again to head off a property crash. By contrast, the European Central Bank may have to raise rates above 4pc after euro-zone inflation reached 2.6pc in October.
Former Federal Reserve chief Alan Greenspan told a forum in Tokyo that the euro's rise against the dollar is "already finished", predicting that the next phase would be a catch-up by the East Asian currencies, such as the yen and the yuan.
Oil was lifted by a warning from the US Energy Information Administration that "strong demand, limited surplus capacity, falling inventories and geopolitical concerns continue to weigh on the market".
It said US oil reserves fell 4pc last year on lack of new discoveries, with steep drops in the Gulf of Mexico and Alaska.
In London, Brent crude rose $2.59 to a record $93.08 a barrel.
The latest slide in the dollar came after the Fed's loan officer survey reported evidence of an incipient credit crunch across broad reaches of the US economy, with banks tightening lending standards on prime mortgages, auto debt and consumer loans.
Bill Gross, head of the giant bond fund PIMCO, said the Fed would have to cut rates to 3.5pc to cushion the blow from likely losses of $250bn on sub-prime and Alt-A debt.
"We've only begun to see the pain for the homeowner in terms of those monthly payments. Defaults and delinquencies will increase as we extend throughout 2007 and into 2008," he said.
Massive purchases of gold by small investors buying exchange traded funds (ETFs) helped drive gold to fresh highs, while traders said that a large buyer operating in Germany had emerged - raising speculation that an Asian or Middle Eastern central bank or sovereign wealth fund has been accumulating bullion.
Barclays Capital said the world gold market had swung this year from surplus to a deficit of 234 tonnes. "The market has not seen such a wide deficit since 1979, according to our market-supply demand model," it said.
UBS upgraded its one-month gold forecast to $850 but warned that speculative positions on New York's Comex futures market had reached extreme levels, which is typically a warning sign.
"A scramble could see gold push higher still. But one thing is sure, once the dust settles, gold will likely correct sharply lower," said the bank's precious metals analyst, John Reade.
Gold has surged $180 an ounce since mid-August. The last time it moved in this fashion, in May 2006, it gave up almost all the gains in a matter of weeks. The concern is that buyers for the jewellery industry will hold back until the price falls, while European central banks are likely to take advantage of the spike to offload bullion.
Even so, gold is likely to stay firm as long as oil keeps reaching new heights. The two are linked automatically through huge commodity funds that have emerged as major players in the market.
Oil has rocketed to an all-time high of $97 a barrel in New York on fears of terrorist attacks on pipelines in the Middle East and falling crude inventories in the United States.
Comment: Stampede into gold comes with a wealth warning
Credit crunch crisis in full in our special section
In a day of wild movements across global markets, the dollar continued to plunge to all-time lows against European currencies while gold surged in late trading to a 28-year peak of $824 an ounce.
The euro reached $1.4568 and sterling broke through $2.09 for the first time since the early Thatcher era in 1981 as funds increased bets that the US Federal Reserve would soon have to cut interest rates again to head off a property crash. By contrast, the European Central Bank may have to raise rates above 4pc after euro-zone inflation reached 2.6pc in October.
Former Federal Reserve chief Alan Greenspan told a forum in Tokyo that the euro's rise against the dollar is "already finished", predicting that the next phase would be a catch-up by the East Asian currencies, such as the yen and the yuan.
Oil was lifted by a warning from the US Energy Information Administration that "strong demand, limited surplus capacity, falling inventories and geopolitical concerns continue to weigh on the market".
It said US oil reserves fell 4pc last year on lack of new discoveries, with steep drops in the Gulf of Mexico and Alaska.
In London, Brent crude rose $2.59 to a record $93.08 a barrel.
The latest slide in the dollar came after the Fed's loan officer survey reported evidence of an incipient credit crunch across broad reaches of the US economy, with banks tightening lending standards on prime mortgages, auto debt and consumer loans.
Bill Gross, head of the giant bond fund PIMCO, said the Fed would have to cut rates to 3.5pc to cushion the blow from likely losses of $250bn on sub-prime and Alt-A debt.
"We've only begun to see the pain for the homeowner in terms of those monthly payments. Defaults and delinquencies will increase as we extend throughout 2007 and into 2008," he said.
Massive purchases of gold by small investors buying exchange traded funds (ETFs) helped drive gold to fresh highs, while traders said that a large buyer operating in Germany had emerged - raising speculation that an Asian or Middle Eastern central bank or sovereign wealth fund has been accumulating bullion.
Barclays Capital said the world gold market had swung this year from surplus to a deficit of 234 tonnes. "The market has not seen such a wide deficit since 1979, according to our market-supply demand model," it said.
UBS upgraded its one-month gold forecast to $850 but warned that speculative positions on New York's Comex futures market had reached extreme levels, which is typically a warning sign.
"A scramble could see gold push higher still. But one thing is sure, once the dust settles, gold will likely correct sharply lower," said the bank's precious metals analyst, John Reade.
Gold has surged $180 an ounce since mid-August. The last time it moved in this fashion, in May 2006, it gave up almost all the gains in a matter of weeks. The concern is that buyers for the jewellery industry will hold back until the price falls, while European central banks are likely to take advantage of the spike to offload bullion.
Even so, gold is likely to stay firm as long as oil keeps reaching new heights. The two are linked automatically through huge commodity funds that have emerged as major players in the market.
No security on Earth; there is only opportunity.
Forget the bears, 2004 is the year of the optimist
Last Updated: 7:17PM GMT 30 Dec 2003
The big mistake I made in 2003 was not being optimistic enough. I spent too long worrying about threats, and not enough time seizing opportunities. I promise not to repeat this error. Next year will be different. :)
This time last year investors were dejected after a three-year bear market. War loomed on the horizon. Confidence was shot and things seemed to be getting worse. The world appeared full of many problems and few solutions. The doomsayers were in the ascendant.
And yet conditions really weren't too bad under the surface - but their appearance was fooling us.
For much of this year I listened too much to pessimists and shortsellers.
Of course things go wrong, but in the meantime the brave make progress and the worst never actually happens.
"Caution" and "safety" seem the mantra of our age, but they are not words to encourage innovation or wealth creation. As General MacArthur said: "There is no security on Earth; there is only opportunity."
Even as regulation and taxation destroy enterprise and jobs, the ingenuity and ambition of entrepreneurs overcomes these obstacles and allows civilisation to make progress.
There remain many difficulties, as ever.
The dollar is desperately weak; there is too much debt; government expenditure is too high; and business remains ferociously competitive. But these sorts of worries are not new - economists will always fret about something or other.
After all, there is always an excuse for not taking action. And in the meantime, the growing armies of the self-employed are taking the plunge and gaining their freedom - despite the concerns of the negative thinkers.
Indeed, if analysed on a scientific basis, most business undertakings are foolhardy, and many great entrepreneurs are crazy. Why struggle and risk losing everything, when you can settle for the comfortable life?
But the lust for adventure is unquenchable. The desire to break free from a mind-numbing daily commute and the indignity of permanent wage-slavery becomes overwhelming. The key ingredient - beyond skill and capital - is faith. If you believe in yourself and the future, then you will make it.
Prospects for the coming year seem sound. Various industries, like the media, technology and hospitality businesses, are unquestionably improving after serious recessions. The City has recovered its vigour.
People are sick of being gloomy and have started to buy and invest.
Although interest rates are gently rising, the housing market appears stable. The wreckage of the telecoms and dotcom crash has been cleared away and margins and sales are slowly picking up. Employment remains high and inflation under control.
What are the likely themes for 2004? Merger and acquisition activity will increase, as companies regain their confidence and start buying again. The continued growth of China will assume ever-greater importance.
Commodity prices will remain strong, with rising demand from a recovering world economy. Having cut costs, corporates will enjoy the benefits of operational gearing and see climbing earnings.
And President Bush will carry on pump-priming the US economy in order to get re-elected in November.
The search for value is as hard as I can remember. The world is still awash with liquidity, and beating the crowd will be a serious challenge.
(2009: Liquidity is there but the banks are not lending).
The easy gains of this year will not be repeated in 2004. Some of the irrational exuberance on display in the past six months will peter out, as investors get a bit more discriminating.
This is a good thing, as it should help prevent disappointments.
So the key lesson of the year is to ignore the cynics. It is too easy to be negative and predict disaster. But the world is infinitely adaptable and people endlessly resourceful. Despite everything our enemies throw at us, society will make progress in the next 12 months.
We should remember Winston Churchill's dictum: "I am an optimist. There does not seem too much use being anything else."
• Luke Johnson is chairman of Signature Restaurants
http://www.telegraph.co.uk/finance/2872520/Forget-the-bears%2C-2004-is-the-year-of-the-optimist.html
Last Updated: 7:17PM GMT 30 Dec 2003
The big mistake I made in 2003 was not being optimistic enough. I spent too long worrying about threats, and not enough time seizing opportunities. I promise not to repeat this error. Next year will be different. :)
This time last year investors were dejected after a three-year bear market. War loomed on the horizon. Confidence was shot and things seemed to be getting worse. The world appeared full of many problems and few solutions. The doomsayers were in the ascendant.
And yet conditions really weren't too bad under the surface - but their appearance was fooling us.
For much of this year I listened too much to pessimists and shortsellers.
Of course things go wrong, but in the meantime the brave make progress and the worst never actually happens.
"Caution" and "safety" seem the mantra of our age, but they are not words to encourage innovation or wealth creation. As General MacArthur said: "There is no security on Earth; there is only opportunity."
Even as regulation and taxation destroy enterprise and jobs, the ingenuity and ambition of entrepreneurs overcomes these obstacles and allows civilisation to make progress.
There remain many difficulties, as ever.
The dollar is desperately weak; there is too much debt; government expenditure is too high; and business remains ferociously competitive. But these sorts of worries are not new - economists will always fret about something or other.
After all, there is always an excuse for not taking action. And in the meantime, the growing armies of the self-employed are taking the plunge and gaining their freedom - despite the concerns of the negative thinkers.
Indeed, if analysed on a scientific basis, most business undertakings are foolhardy, and many great entrepreneurs are crazy. Why struggle and risk losing everything, when you can settle for the comfortable life?
But the lust for adventure is unquenchable. The desire to break free from a mind-numbing daily commute and the indignity of permanent wage-slavery becomes overwhelming. The key ingredient - beyond skill and capital - is faith. If you believe in yourself and the future, then you will make it.
Prospects for the coming year seem sound. Various industries, like the media, technology and hospitality businesses, are unquestionably improving after serious recessions. The City has recovered its vigour.
People are sick of being gloomy and have started to buy and invest.
Although interest rates are gently rising, the housing market appears stable. The wreckage of the telecoms and dotcom crash has been cleared away and margins and sales are slowly picking up. Employment remains high and inflation under control.
What are the likely themes for 2004? Merger and acquisition activity will increase, as companies regain their confidence and start buying again. The continued growth of China will assume ever-greater importance.
Commodity prices will remain strong, with rising demand from a recovering world economy. Having cut costs, corporates will enjoy the benefits of operational gearing and see climbing earnings.
And President Bush will carry on pump-priming the US economy in order to get re-elected in November.
The search for value is as hard as I can remember. The world is still awash with liquidity, and beating the crowd will be a serious challenge.
(2009: Liquidity is there but the banks are not lending).
The easy gains of this year will not be repeated in 2004. Some of the irrational exuberance on display in the past six months will peter out, as investors get a bit more discriminating.
This is a good thing, as it should help prevent disappointments.
So the key lesson of the year is to ignore the cynics. It is too easy to be negative and predict disaster. But the world is infinitely adaptable and people endlessly resourceful. Despite everything our enemies throw at us, society will make progress in the next 12 months.
We should remember Winston Churchill's dictum: "I am an optimist. There does not seem too much use being anything else."
• Luke Johnson is chairman of Signature Restaurants
http://www.telegraph.co.uk/finance/2872520/Forget-the-bears%2C-2004-is-the-year-of-the-optimist.html
Unhappy dollar slides to all-time low against euro (Nov 2004)
Unhappy dollar slides to all-time low against euro
By David LitterickLast
Updated: 12:03AM GMT 19 Nov 2004
The dollar hit an all-time low against the euro yesterday, crashing through the $1.30 level as traders dismissed US Treasury Secretary John Snow's insistence on a strong dollar as increasingly hollow.
The euro closed at $1.3024, up nearly half a cent, as dealers continued to fret over how the US will attract the necessary capital inflows to fund its deteriorating trade balance and budget deficit.
The fear is that increasing numbers of overseas investors might lose confidence in the debt-ridden US economy and place their money elsewhere.
Sterling also rose against the dollar, climbing 0.29 cents to $1.8561, while the weak dollar saw the price of gold climb $4.90 to a fresh 16-year high of $444.70 per troy ounce.
Visting London yesterday, Mr Snow reaffirmed the Bush administration's dollar policy, saying: "a strong dollar is in both the national and international interest." He denied the US government secretly wanted a weaker currency to stimulate trade, claiming: "No one has ever devalued their way to prosperity. It can't be done."
He also rebutted speculation of possible central bank intervention to slow the decline of the dollar, saying it was for the market to decide its value. "The history of efforts to impose non-market solutions is at best unrewarding and chequered," he said.
Analysts attached little credibility to Mr Snow's comments, suggesting the administration had no real appetite for tackling the decline of the dollar. The US government is considered more likely to make strong economic growth a greater priority by supporting domestic demand, increasing the pressure on the US deficit and the dollar.
Jeremy Fand, a senior trader at WestLB in New York, said: "The administration is not going to stand in the way of dollar weakness. They are playing hardball with the Europeans."
European leaders have recently become more concerned at the rise in the euro, which makes European exports more expensive and could dampen the growth of an already sluggish economy. But they have so far expressed little desire to tackle the problem. A meeting of European finance ministers earlier in the week failed to arrive at any conclusion.
Central bankers and finance ministers from the world's 20 largest economies meet in Berlin this weekend but few in the foreign exchange market believe the G20 will take action to stem the dollar's decline.
The euro was launched at the beginning of 1999 at an exchange rate of $1.17 and had plunged below 83 cents by October of the following year. Having now breached the $1.30 level, the Federal Reserve's trade-weighted dollar index has fallen by 21pc since George Bush took office in January 2001.
Dealers said investors were turning from the greenback to Asian currencies in the anticipation that the Chinese government will come under pressure from the West to remove the peg linking the yuan to the dollar, leading to an appreciation of the currency.
The dollar is expected to fall further to $1.35 in the coming months, although dealers said hedge funds and other speculators were short of the dollar, leaving open the possibility of a short-term correction.
The dollar hit an all-time low against the euro yesterday, crashing through the $1.30 level as traders dismissed US Treasury Secretary John Snow's insistence on a strong dollar as increasingly hollow.
The euro closed at $1.3024, up nearly half a cent, as dealers continued to fret over how the US will attract the necessary capital inflows to fund its deteriorating trade balance and budget deficit.
The fear is that increasing numbers of overseas investors might lose confidence in the debt-ridden US economy and place their money elsewhere.
Sterling also rose against the dollar, climbing 0.29 cents to $1.8561, while the weak dollar saw the price of gold climb $4.90 to a fresh 16-year high of $444.70 per troy ounce.
Visting London yesterday, Mr Snow reaffirmed the Bush administration's dollar policy, saying: "a strong dollar is in both the national and international interest." He denied the US government secretly wanted a weaker currency to stimulate trade, claiming: "No one has ever devalued their way to prosperity. It can't be done."
He also rebutted speculation of possible central bank intervention to slow the decline of the dollar, saying it was for the market to decide its value. "The history of efforts to impose non-market solutions is at best unrewarding and chequered," he said.
Analysts attached little credibility to Mr Snow's comments, suggesting the administration had no real appetite for tackling the decline of the dollar. The US government is considered more likely to make strong economic growth a greater priority by supporting domestic demand, increasing the pressure on the US deficit and the dollar.
Jeremy Fand, a senior trader at WestLB in New York, said: "The administration is not going to stand in the way of dollar weakness. They are playing hardball with the Europeans."
European leaders have recently become more concerned at the rise in the euro, which makes European exports more expensive and could dampen the growth of an already sluggish economy. But they have so far expressed little desire to tackle the problem. A meeting of European finance ministers earlier in the week failed to arrive at any conclusion.
Central bankers and finance ministers from the world's 20 largest economies meet in Berlin this weekend but few in the foreign exchange market believe the G20 will take action to stem the dollar's decline.
The euro was launched at the beginning of 1999 at an exchange rate of $1.17 and had plunged below 83 cents by October of the following year. Having now breached the $1.30 level, the Federal Reserve's trade-weighted dollar index has fallen by 21pc since George Bush took office in January 2001.
Dealers said investors were turning from the greenback to Asian currencies in the anticipation that the Chinese government will come under pressure from the West to remove the peg linking the yuan to the dollar, leading to an appreciation of the currency.
The dollar is expected to fall further to $1.35 in the coming months, although dealers said hedge funds and other speculators were short of the dollar, leaving open the possibility of a short-term correction.
Falling US dollar in 2004
Greenspan holds out little hope for dollar
By Edmund Conway
Last Updated: 12:33AM GMT 20 Nov 2004
The dollar hit a new all-time low against the euro yesterday as Alan Greenspan said there was little anyone could do to prevent it falling further.
The chairman of the US Federal Reserve warned the European Central Bank from intervening in the foreign exchange markets as he spoke in Frankfurt ahead of the meeting of the G20 industrialised and developing economies in Berlin this weekend.
"It seems persuasive that, given the size of the US current account deficit, a diminished appetite for adding to dollar balances must occur at some point," said Mr Greenspan, sending the Dow Jones plunging by over 100 points in afternoon trading. The dollar dropped almost three quarters of a cent against the euro to close in London at $1.3058.
Mr Greenspan said: "Current account imbalances, per se, need not be a problem, but cumulative deficits, which result in a marked decline of a country's net international investment position - as is occurring in the United States - raise more complex issues."
It is not the first time Mr Greenspan has raised concern over the US current account deficit, which amounts to 5.7pc of the country's annual output. However, he also echoed the US Treasury Secretary John Snow's warning earlier this week that he would not support central bank intervention against the falling dollar. He said intervention could have only a limited and short-term effect.
Mr Greenspan said the best action the Bush administration could take would be to cut its spending and reduce the budget deficit.
The dollar is expected to be one of the most heated topics for discussion at the meeting, since European policy-makers have complained that its weakness, and the euro's consequent expense, has hit exports and manufacturing.
Gordon Brown is expected to call for the International Monetary Fund to investigate and compare the fiscal positions of G20 members. The Chancellor is thought to believe this comparison would show the UK is well-placed compared to other major countries, despite recent criticisms about its fiscal position, and the Treasury's slimming chances of meeting his borrowing rules.
http://www.telegraph.co.uk/finance/2899997/Greenspan-holds-out-little-hope-for-dollar.html
By Edmund Conway
Last Updated: 12:33AM GMT 20 Nov 2004
The dollar hit a new all-time low against the euro yesterday as Alan Greenspan said there was little anyone could do to prevent it falling further.
The chairman of the US Federal Reserve warned the European Central Bank from intervening in the foreign exchange markets as he spoke in Frankfurt ahead of the meeting of the G20 industrialised and developing economies in Berlin this weekend.
"It seems persuasive that, given the size of the US current account deficit, a diminished appetite for adding to dollar balances must occur at some point," said Mr Greenspan, sending the Dow Jones plunging by over 100 points in afternoon trading. The dollar dropped almost three quarters of a cent against the euro to close in London at $1.3058.
Mr Greenspan said: "Current account imbalances, per se, need not be a problem, but cumulative deficits, which result in a marked decline of a country's net international investment position - as is occurring in the United States - raise more complex issues."
It is not the first time Mr Greenspan has raised concern over the US current account deficit, which amounts to 5.7pc of the country's annual output. However, he also echoed the US Treasury Secretary John Snow's warning earlier this week that he would not support central bank intervention against the falling dollar. He said intervention could have only a limited and short-term effect.
Mr Greenspan said the best action the Bush administration could take would be to cut its spending and reduce the budget deficit.
The dollar is expected to be one of the most heated topics for discussion at the meeting, since European policy-makers have complained that its weakness, and the euro's consequent expense, has hit exports and manufacturing.
Gordon Brown is expected to call for the International Monetary Fund to investigate and compare the fiscal positions of G20 members. The Chancellor is thought to believe this comparison would show the UK is well-placed compared to other major countries, despite recent criticisms about its fiscal position, and the Treasury's slimming chances of meeting his borrowing rules.
http://www.telegraph.co.uk/finance/2899997/Greenspan-holds-out-little-hope-for-dollar.html
Gold is denominated in the US currency (Nov 2007 article)
Sterling hits $2.10 as dollar is dumped
By Richard Blackden
Last Updated: 1:09AM GMT 08 Nov 2007
China has $1.33 trillion of foreign-exchange reserves
Sterling has pushed through the $2.10 barrier for the first time in 26 years after the Chinese government indicated it is prepared to diversify some of its huge foreign-exchange reserves.
China threatens 'nuclear option' of dollar sales
Dollar crunch puts gold centre stage
Oil, gold and euro surge to records
The pound stormed to as high as $2.1021 in trading in London, a level not seen since the early Thatcher era, and many currency experts now predict it go higher despite signs that the UK economy is slowing.
The greenback's renewed weakness was sparked by comments from Cheng Siwei, vice chairman of China's National People's Congress, who suggested China will diversify some of its $1.33 trillion (£660bn) of foreign-exchange reserves.
Mr Siwei told a conference in Beijing: "We will favour stronger currencies over weaker ones, and will readjust accordingly."
Besides sterling, the dollar was down against 14 of the world's 16 biggest currencies this morning, hitting the lowest since the 1950s versus the Canadian dollar, reaching a new record against the euro and its weakest in more than 20 years against the Australian dollar.
Sterling's move higher comes a day before Bank of England Governor Mervyn King and the rest of the Monetary Policy Committee are due to give their latest decision on interest rates.
While the majority of economists expect interest rates to be left at 5.75pc, the surge in the currency is likely to put parts of the country's manufacturing industry under pressure.
The flight from the dollar is helping to fuel oil's assault on the $100-a-barrel mark and investors' appetite for gold, which is denominated in the US currency. The dollar was also hit yesterday by a report that the Fed's loan officer survey reported evidence of an incipient credit crunch across broad reaches of the US economy, with banks tightening lending standards on prime mortgages, auto debt and consumer loans.
China has $1.33 trillion of foreign-exchange reserves
Sterling has pushed through the $2.10 barrier for the first time in 26 years after the Chinese government indicated it is prepared to diversify some of its huge foreign-exchange reserves.
China threatens 'nuclear option' of dollar sales
Dollar crunch puts gold centre stage
Oil, gold and euro surge to records
The pound stormed to as high as $2.1021 in trading in London, a level not seen since the early Thatcher era, and many currency experts now predict it go higher despite signs that the UK economy is slowing.
The greenback's renewed weakness was sparked by comments from Cheng Siwei, vice chairman of China's National People's Congress, who suggested China will diversify some of its $1.33 trillion (£660bn) of foreign-exchange reserves.
Mr Siwei told a conference in Beijing: "We will favour stronger currencies over weaker ones, and will readjust accordingly."
Besides sterling, the dollar was down against 14 of the world's 16 biggest currencies this morning, hitting the lowest since the 1950s versus the Canadian dollar, reaching a new record against the euro and its weakest in more than 20 years against the Australian dollar.
Sterling's move higher comes a day before Bank of England Governor Mervyn King and the rest of the Monetary Policy Committee are due to give their latest decision on interest rates.
While the majority of economists expect interest rates to be left at 5.75pc, the surge in the currency is likely to put parts of the country's manufacturing industry under pressure.
The flight from the dollar is helping to fuel oil's assault on the $100-a-barrel mark and investors' appetite for gold, which is denominated in the US currency. The dollar was also hit yesterday by a report that the Fed's loan officer survey reported evidence of an incipient credit crunch across broad reaches of the US economy, with banks tightening lending standards on prime mortgages, auto debt and consumer loans.
Gold sparkles to a 16-year high as greenback slumps (in 2004)
Gold sparkles to a 16-year high as greenback slumps
By Malcolm Moore, Economics Correspondent
By Malcolm Moore, Economics Correspondent
Last Updated: 5:42PM GMT 26 Nov 2004
Gold broke through the $450-an-ounce barrier yesterday, rising to a 16-year high as the dollar fell to a new record low against the euro.
Volumes were thin, since the US market was closed for Thanksgiving, as gold rose $3.70 per troy ounce to $452. The dollar fell to $1.3233 against the euro and to $1.8888 against sterling.
Gold, which has risen 13pc since September, has been "primarily driven" by the weakness of the dollar, according to Kamal Naqvi, a precious metals analyst at Barclays Capital. He believes the next resistance level for gold is "about $461". Gold has risen by $59.75 in the past year but only by £8.18 in sterling terms in the same period.
The fall in the dollar was partly triggered by bearish notes from UBS, Merrill Lynch and JP Morgan, which account for about a fifth of the currency markets between them. Merrill cut its March forecasts for the dollar to $1.39 a euro from $1.33 and JP Morgan cut its estimates to $1.37 from $1.30. All three said the dollar is being undermined by the record US current account deficit. As the gap widens, more dollars need to be exchanged for foreign currencies to pay for imports.
Charlie Bean, the chief economist of the Bank of England, warned the large current account and fiscal deficits in the US could trigger "a further - possibly substantial - decline" in the dollar. He said: "At some stage, action will have to be taken to close the US fiscal deficit and when that happens, the real value of the dollar will need to fall if a sharp slowdown is to be avoided there.
"In the mid-1980s, the elimination of the twin US fiscal and current account deficits - then around 3pc of GDP - was accompanied by a fall of around 30pc in the real trade-weighted value of the dollar." Since February 2002, the dollar has only fallen 15pc in real terms. He added that sterling has historically been "relatively stable" in its movement against the dollar and the euro.
Nicolas Sarkozy, the French finance minister, urged the US to cut its twin deficits yesterday, saying "it is absolutely essential so their currency does not skew trade".
The surge in the euro against the dollar sapped German business confidence this month, the country's Ifo economic institute said yesterday. It warned the rise could threaten Europe's largest economy and urged intervention in the currency markets.
Gold will continue to rise as the dollar weakens, analysts predicted, but the price rise has not boosted the share price of gold miners. The FTSE Global Gold Mines Index has fallen this week, and is below its annual high of 1892.90 on January 2, when the gold price stood at $383 an ounce.
Gold broke through the $450-an-ounce barrier yesterday, rising to a 16-year high as the dollar fell to a new record low against the euro.
Volumes were thin, since the US market was closed for Thanksgiving, as gold rose $3.70 per troy ounce to $452. The dollar fell to $1.3233 against the euro and to $1.8888 against sterling.
Gold, which has risen 13pc since September, has been "primarily driven" by the weakness of the dollar, according to Kamal Naqvi, a precious metals analyst at Barclays Capital. He believes the next resistance level for gold is "about $461". Gold has risen by $59.75 in the past year but only by £8.18 in sterling terms in the same period.
The fall in the dollar was partly triggered by bearish notes from UBS, Merrill Lynch and JP Morgan, which account for about a fifth of the currency markets between them. Merrill cut its March forecasts for the dollar to $1.39 a euro from $1.33 and JP Morgan cut its estimates to $1.37 from $1.30. All three said the dollar is being undermined by the record US current account deficit. As the gap widens, more dollars need to be exchanged for foreign currencies to pay for imports.
Charlie Bean, the chief economist of the Bank of England, warned the large current account and fiscal deficits in the US could trigger "a further - possibly substantial - decline" in the dollar. He said: "At some stage, action will have to be taken to close the US fiscal deficit and when that happens, the real value of the dollar will need to fall if a sharp slowdown is to be avoided there.
"In the mid-1980s, the elimination of the twin US fiscal and current account deficits - then around 3pc of GDP - was accompanied by a fall of around 30pc in the real trade-weighted value of the dollar." Since February 2002, the dollar has only fallen 15pc in real terms. He added that sterling has historically been "relatively stable" in its movement against the dollar and the euro.
Nicolas Sarkozy, the French finance minister, urged the US to cut its twin deficits yesterday, saying "it is absolutely essential so their currency does not skew trade".
The surge in the euro against the dollar sapped German business confidence this month, the country's Ifo economic institute said yesterday. It warned the rise could threaten Europe's largest economy and urged intervention in the currency markets.
Gold will continue to rise as the dollar weakens, analysts predicted, but the price rise has not boosted the share price of gold miners. The FTSE Global Gold Mines Index has fallen this week, and is below its annual high of 1892.90 on January 2, when the gold price stood at $383 an ounce.
Saturday 17 January 2009
US looks at fresh bank investment after $26bn losses
US looks at fresh bank investment after $26bn losses
The US government is investigating new ways of addressing continued dislocation in the US banking sector, contemplating a second round of investment in the hope of reducing banks' exposures to "toxic" illiquid assets.
By James Quinn, Wall Street Correspondent
Last Updated: 11:35PM GMT 16 Jan 2009
Officials from within the Bush administration – in their final days ahead of President-elect Barack Obama's inauguration on Tuesday – are looking at a wide range of options to tackle the crisis in the country's major banks.
High on the list is understood to be a plan to roll out guarantees to back-stop further losses, the like of which have already been granted to Citigroup and Bank of America (BoA).
Another option would be to create some form of vehicle to remove assets from balance sheets once and for all, similar to outgoing Treasury Secretary Hank Paulson's original intention for the $700bn (£474bn) bank bail-out fund.
The discussions, which are understood to involve members of Obama's transition team, have been continuing for a number of weeks, as it has become increasingly clear that the problems in the banking sector have not been stopped by the $125bn round of capital injections into the country's nine major banks.
In addition to the impact the dislocation in the housing market has had on US banks' balance sheets, there is a growing threat from the deterioration in consumer credit, with car loans, unsecured personal loans and credit cards all showing signs of increasing default.
The problems within the US banking market were exemplified in the last few days by a batch of dismal financial results from some of the major banks, with heavy losses sending shares plummeting as concerns that 2009 may yet be as bad a year for financials as 2008 surfaced.
Shares in all the major banks fell yesterday, with BoA closing down 14pc, Citigroup off 9pc and JP Morgan Chase ending the day 6pc lower.
The falls came after Citigroup reported a post-tax loss of $8.29bn in the fourth quarter, its fifth consecutive loss, albeit within the $6bn-$10bn range analysts had been forecasting.
Alongside the results, chief executive Vikram Pandit outlined his plan to split the bank into two units;
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4274591/US-looks-at-fresh-bank-investment-after-26bn-losses.html
The US government is investigating new ways of addressing continued dislocation in the US banking sector, contemplating a second round of investment in the hope of reducing banks' exposures to "toxic" illiquid assets.
By James Quinn, Wall Street Correspondent
Last Updated: 11:35PM GMT 16 Jan 2009
Officials from within the Bush administration – in their final days ahead of President-elect Barack Obama's inauguration on Tuesday – are looking at a wide range of options to tackle the crisis in the country's major banks.
High on the list is understood to be a plan to roll out guarantees to back-stop further losses, the like of which have already been granted to Citigroup and Bank of America (BoA).
Another option would be to create some form of vehicle to remove assets from balance sheets once and for all, similar to outgoing Treasury Secretary Hank Paulson's original intention for the $700bn (£474bn) bank bail-out fund.
The discussions, which are understood to involve members of Obama's transition team, have been continuing for a number of weeks, as it has become increasingly clear that the problems in the banking sector have not been stopped by the $125bn round of capital injections into the country's nine major banks.
In addition to the impact the dislocation in the housing market has had on US banks' balance sheets, there is a growing threat from the deterioration in consumer credit, with car loans, unsecured personal loans and credit cards all showing signs of increasing default.
The problems within the US banking market were exemplified in the last few days by a batch of dismal financial results from some of the major banks, with heavy losses sending shares plummeting as concerns that 2009 may yet be as bad a year for financials as 2008 surfaced.
Shares in all the major banks fell yesterday, with BoA closing down 14pc, Citigroup off 9pc and JP Morgan Chase ending the day 6pc lower.
The falls came after Citigroup reported a post-tax loss of $8.29bn in the fourth quarter, its fifth consecutive loss, albeit within the $6bn-$10bn range analysts had been forecasting.
Alongside the results, chief executive Vikram Pandit outlined his plan to split the bank into two units;
- Citicorp, its core banking business with assets of $1,100bn; and
- Citi Holdings, which will essentially be made up of its troublesome brokerage and asset management business, with assets of $850bn.
Meanwhile, BoA continued to stumble, reporting its first loss since 1991, a quarterly post-tax loss of $2.39bn. This figure did not include Merrill Lynch's $15.31bn loss for the fourth quarter, because the purchase was only completed on January 1.
Nevertheless, Merrill's losses continue to weigh heavily on its new parent, which yesterday revealed it is to receive a fresh $20bn capital injection from the US Treasury and a guarantee from the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) back-stopping the losses on $118bn of Merrill's most toxic assets.
In return, the bank will have to issue $4bn of preferred shares yielding an 8pc coupon, as well as paying 8pc-a-year on the $20bn, issue further warrants and cut its dividend and place a cap on executive pay and bonuses.
BoA chairman Ken Lewis, who has come under fire for going ahead with the Merrill deal in spite of the dismal state of its finances, said that in December he looked into backing out of the deal, but that government officials told him to do so could create "serious systemic harm".
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4274591/US-looks-at-fresh-bank-investment-after-26bn-losses.html
Gold to rise for eighth consecutive year
Gold to rise for eighth consecutive year
Gold is set to appreciate for an eighth year as investors seek a refuge from declining interest rates at the same time that central banks inject more cash into the banking system, according to Bloomberg.
Last Updated: 5:38PM GMT 08 Jan 2009
Gold to rise for eight consecutive year Photo: EPA
The metal will average $910 an ounce in 2009, 4.3 per cent more than last year, according to the median forecast of 20 analysts, traders and investors surveyed by Bloomberg. Silver and platinum, which averaged at least 12pc more in 2008, will decline this year, the survey showed.
More than half of those surveyed predict that the price of gold will end the year above $910 – with the four biggest bulls suggesting that a price of $1,000 an ounce will be met by the end of 2009.
Average gold prices have risen for seven consecutive years, the longest winning streak since at least 1949. While the return of 5.8pc through 2008 was the smallest since 2004 in dollar terms, gold rose 1pc in euros and 44pc in sterling, Bloomberg said.
The most bearish analysts were the online trading platform Finotec, bullion dealer Kitco and the bullion banks JP Morgan and Barclays. They all forecast an average price of between 6.3pc and 11.8pc below the average price of $872/oz in 2008.
But Gold & Silver Investments, the bullion dealer, said that many of the bears 'have been bearish for a number of years and have failed to realise that we are in a bull market’.
Gold & Silver Investments added: “Given the deflationary headwinds assailing us early in 2009, they may be proved right this year as further massive deleveraging could affect the gold price. However, we believe this to be unlikely given the massive macroeconomic and systemic risk and increasing monetary and geopolitical risk.
"And we believe that should the deflationary pressures continue throughout 2009, then most commodities and asset classes will again fall sharply in 2009 but gold will again outperform. Importantly, gold also rose during the last bout of sharp deflation in the Great Depression of the 1930s when Roosevelt revalued gold by 60pc and devalued the dollar by 60pc, from $22/oz to $35/oz.”
Risk and Return
Risk and Return
Any investor needs to ask themselves the following questions:
It is the mix of assets that drives returns. Some 75% of the return on a portfolio may be attributable to getting the choice of assets and geographical markets right over the medium term.
Our role as portfolio managers, once you have selected the portfolio, is to actively manage your assets in the global markets within the parameters we have established with you.
Remember this is your personal choice and reflects your emotional response to risk and your expectation of return.
Once you have decided where you feel most comfortable we can then determine the asset allocation that best matches your individual profile.
http://offers.telegraph.co.uk/content-10027/
Any investor needs to ask themselves the following questions:
- How long can I invest for?
- What is the worst case scenario?
- Can I tolerate fluctuations in returns?
- What level of return do I need to match any future liabilities?
- Do I understand the characteristics of different asset classes?
- How do I achieve an objective investment process to meet my profile?
It is the mix of assets that drives returns. Some 75% of the return on a portfolio may be attributable to getting the choice of assets and geographical markets right over the medium term.
Our role as portfolio managers, once you have selected the portfolio, is to actively manage your assets in the global markets within the parameters we have established with you.
Remember this is your personal choice and reflects your emotional response to risk and your expectation of return.
Once you have decided where you feel most comfortable we can then determine the asset allocation that best matches your individual profile.
http://offers.telegraph.co.uk/content-10027/
World's burst-bubble economy
Reviving the world's burst-bubble economy seems further away than ever
In the US and in Ireland, governments have been scrambling again to support their banks.
By Ian Campbell, breakingviews.com
Last Updated: 6:25PM GMT 16 Jan 2009
For the economic prospects of these countries, and the world economy, that is troubling. Recession is only just beginning and yet many banks are holed.
Governments are being obliged to pour in more capital, adding to the huge liabilities they now face. This vicious circle augurs poorly for recovery.
It is not that governments should avoid intervening in banks. They are obliged to. To put public money into the banking system is the right thing to do because neither national economies nor the world can afford the collapse of large financial institutions.
Moreover, fresh losses at banks will make them more risk-averse and less inclined to lend into the economy, excerbating the recession. Economic recovery needs credit and the banks need economic recovery.
To restore their financial positions, banks must continue the retreat from high leverage and risk. But the large amounts of public money poured into them do not automatically mean they will be quick to lend more.
At present, neither is in a strong position to help the other. On the contrary, recession and low-growth risk are creating further asset losses for banks - and further recourse to government budgets already under huge strain.
Had Anglo Irish Bank become insolvent, the Irish government, whose fiscal deficit is already heading towards double digits, would have been liable for some 100bn euros in deposits - about half of Ireland's GDP.
The Irish government has guaranteed deposits in all its banks but could not afford to honour that guarantee without issuing debt that would far exceed the country's GDP. It is improbable anyone would want to buy it. Nor can Ireland resort to the money printing press for funding, as the US and UK governments may eventually do. Ireland no longer has its own pounds to print.
The worst afflicted banks are in countries which have experienced property price bubbles, like the US and Ireland. But as recession bites, more loans in more sectors and in more countries may turn bad.
All this makes it likely that governments will be forced to print more money. At present, central banks are buying financial assets but not directly funding governments. Before long, however, they may be forced along that sorry path - the same one traveled in the past from Argentina to Zimbabwe.
It's not yet the time. But monetising bad debt and devaluing paper money may in the end be the only way of reviving the world's burst-bubble economy.
http://www.telegraph.co.uk/finance/breakingviewscom/4272951/Reviving-the-worlds-burst-bubble-economy-seems-further-away-than-ever.html
In the US and in Ireland, governments have been scrambling again to support their banks.
By Ian Campbell, breakingviews.com
Last Updated: 6:25PM GMT 16 Jan 2009
For the economic prospects of these countries, and the world economy, that is troubling. Recession is only just beginning and yet many banks are holed.
Governments are being obliged to pour in more capital, adding to the huge liabilities they now face. This vicious circle augurs poorly for recovery.
It is not that governments should avoid intervening in banks. They are obliged to. To put public money into the banking system is the right thing to do because neither national economies nor the world can afford the collapse of large financial institutions.
Moreover, fresh losses at banks will make them more risk-averse and less inclined to lend into the economy, excerbating the recession. Economic recovery needs credit and the banks need economic recovery.
To restore their financial positions, banks must continue the retreat from high leverage and risk. But the large amounts of public money poured into them do not automatically mean they will be quick to lend more.
At present, neither is in a strong position to help the other. On the contrary, recession and low-growth risk are creating further asset losses for banks - and further recourse to government budgets already under huge strain.
Had Anglo Irish Bank become insolvent, the Irish government, whose fiscal deficit is already heading towards double digits, would have been liable for some 100bn euros in deposits - about half of Ireland's GDP.
The Irish government has guaranteed deposits in all its banks but could not afford to honour that guarantee without issuing debt that would far exceed the country's GDP. It is improbable anyone would want to buy it. Nor can Ireland resort to the money printing press for funding, as the US and UK governments may eventually do. Ireland no longer has its own pounds to print.
The worst afflicted banks are in countries which have experienced property price bubbles, like the US and Ireland. But as recession bites, more loans in more sectors and in more countries may turn bad.
All this makes it likely that governments will be forced to print more money. At present, central banks are buying financial assets but not directly funding governments. Before long, however, they may be forced along that sorry path - the same one traveled in the past from Argentina to Zimbabwe.
It's not yet the time. But monetising bad debt and devaluing paper money may in the end be the only way of reviving the world's burst-bubble economy.
http://www.telegraph.co.uk/finance/breakingviewscom/4272951/Reviving-the-worlds-burst-bubble-economy-seems-further-away-than-ever.html
Zimbabwe currency depreciating at fastest rate
Zimbabwe shops stop accepting local currency
Shops in Zimbabwe are refusing to accept the local currency after it depreciated at its fastest ever rate at the weekend.
By Peta Thornycroft in Harare and Sebastien Berger Last Updated: 9:30AM GMT 27 Oct 2008
Empty shelves in a supermarket in Harare Photo: EPA
While millions of Zimbabweans are already going hungry, the move by supermarket owners, who have few goods available for customers to buy, has added to the hardship experienced by the urban population.
Most do not have access to foreign currency, such as US dollars or the South African rand, now demanded by shopkeepers for payment.
A sign outside a supermarket in Harare's wealthy northern suburbs informed the public on Sunday that, like many other shops, it would not accept cheques or debit cards, because they take too long to clear while the Zimbabwe dollar plunges hourly.
Weeping with frustration, a well-dressed woman fled the shop in tears as she was left unable to buy anything, despite having amassed Z$14 billion for her weekly shop. But even cash was useless, and the shop manager told her he was only accepting US dollars.
"I felt really terrible telling her this, she is a good customer, a really nice person, but it is too difficult to sell in local currency," he said. "We don't know how to mark up goods as the Zimbabwe dollar is worthless now."
All his goods except meat and most vegetables were imported from South Africa and, with 75 per cent tax, payable in foreign currency to the government slapped on every item, many basic items cost four to five times as much as south of the border, even with a relatively low mark-up.
"I don't even know the rate for the Zim dollar as it changes by the hour," he said. "We have no alternative but to try and stay alive by charging in US. I am really feeling the strain and I can see customers, and many are old friends, are suffering. Some of them used to be quite well off."
The country's hyperinflation is driven by the central bank creating ever more money to fund the government's activities. Even though the authorities chopped 10 zeroes off the currency in August, its interventions and regulations have created a bewildering array of black-market exchange rates.
For cash notes, which the price rises mean are in appallingly short supply despite the printing presses working overtime, on Sunday £1 was worth around Z$110,000. But for cheque transfers, £1 brought anywhere from Z$8 billion to Z$32billion.
At independence in 1980, the Zimbabwe dollar was worth more than the US dollar, but Robert Mugabe's regime has destroyed the economy, with the slide accelerating in recent years, months and weeks.
John Robertson, an independent economist, said the Zimbabwe dollar's current plunge was unprecedented. "We had seen it losing value at about 25 per cent a day, now it is losing hundreds of per cent an hour. It is now a valueless currency."
A Zimbabwean businessman said: "The Reserve Bank is looting, that is what caused this end-of-game crash. The Zim dollar lost three zeroes in a week. Now you can fly from Harare to Victoria Falls for US 20 cents."
For ordinary Zimbabweans life has become almost impossible. Bank cash withdrawals are limited to a maximum Z$50,000 a day – enough to buy two bananas from street vendors, who are still selling in the local currency, but 0.000625p at the cheque rate.
Companies are only allowed Z$10,000, or half a banana in street value.
Shops have begun refusing to accept Zimbabwean dollars in any form.
A businessman said: "When supermarkets have to start paying their workers in US dollars they will have to close. When the civil servants demand foreign currency wages, then that will be the end of the road for Mugabe."
Southern African leaders meanwhile meet in Harare on Monday for an emergency summit on Zimbabwe's political stalemate. Mr Mugabe, the opposition leader Morgan Tsvangirai and the former South African president Thabo Mbeki will discuss implementing a power-sharing agreement, although hopes for progress are slim.
Comment:
The goods and assets can still be bought using foreign currencies. The US dollar and the South African rands are accepted for exchange of goods and services. However, the Zimbabwe currency is depreciating at a very fast rate. It continues to lose its buying power. The Zimbabwe government is printing money at a fast rate to keep the country going. Soon, it will be worthless and even those who are now accepting this currency will refuse to accept this currency.
10 TENETS OF VALUE INVESTING
10 TENETS OF VALUE INVESTING
Value investing is ultimately common sense applied to capital allocation.
Its general philosophy and key tools can be summarized in the following 10 value-investing tenets.
Value investing is ultimately common sense applied to capital allocation.
Its general philosophy and key tools can be summarized in the following 10 value-investing tenets.
- MR. MARKET PRINCIPLE
- BUSINESS ANALYST PRINCIPLE
- REASONABLE PRICE PRINCIPLE
- PATSY PRINCIPLE
- CIRCLE OF COMPETENCE PRINCIPLE ****
- MOAT PRINCIPLE
- MARGIN OF SAFETY PRINCIPLE ****
- IN-LAW PRINCIPLE
- ELITISM PRINCIPLE
- OWNER PRINCIPLE
That's what value investing is.
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