The mood this week has so far been positive following the latest bank bailout in the US.
This time the giant Citigroup needed a cash injection from the Fed, as well as further guarantees totalling over $300bn. Stock markets around the world reacted well, with the FTSE, CAC and DAX all posting gains around the 10% mark. One surprising area of concern has appeared with Dubai, previously seeming completely immune with the glut of petro-dollars, now stating that it too is in trouble having over-leveraged to get to its current position. With property prices reportedly now some 40% off the highs it seems that realisation is dawning that no-one is likely to remain unaffected from this current crisis.
The UK issued its so-called ‘pre budget’ report outlining how it intends to finance its plans to further borrow its way to economic growth. Now being dubbed the ‘Robin Hood’ budget, there were some measures to tax high earners in the future to pay for some of the short term expenditure now. However the headline 2.5% off VAT failed to ignite too much interest - as one commentator wrote ” … would you go into a high street store offering a 2.5% discount off everything …” This morning we are seeing further calls from the Bank of England stating that the focus should remain on the credit markets, as there is still very little evidence of any real loosening of the mechanism at bank level.
The concern remains that it is likely to be a further 6 months before the real effects of this are felt in the real economy. With the country already firmly in recession, the bank is clearly concerned that there will be a direct correlation between when credit returns and how long the recession really will last for.
The rest of the week is likely to remain fairly quiet with the Thanksgiving holiday in the US, however the broad themes remain the same with most people remaining vigilant for any further signs of any worsening in market conditions. Now that it is broadly accepted the world is heading into recession through the majority of 2009, the real questions are now where investors will look to remain as insulated as possible.
We will be keeping you in touch with all of the latest relevant themes. Please post any comments and questions ….
