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Something awful is afoot. Homebuilders sales fell by 5-10% last week. Over in the US housing market, sales of existing homes just slumped at their fastest rate in 16 years according to data released Tuesday. Consumer confidence sank to a two-year low. The International Monetary Fund (IMF) warns that "Global markets face a protracted adjustment, triggered by the collapse of the subprime US housing market." In truth, the cold, hard, ugly fact remains: protecting your money is your own affair, gentle reader. Any promise of a future return guarantees that your cash is at risk...even if it's just sitting "safe" in a low-interest bank account!
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Northern Rock seems to be the least of it for the Gold Market, however. "External news such as the sub-prime crisis as well as the banking sector have all had a positive impact on the yellow metal price," said Jessica Cross, CEO of the Virtual Metals consultancy, on South African radio last Thursday night. "The [upcoming] US elections are also playing a role. The Republicans are going for economic growth at all costs, even if it means a weaker dollar and that is obviously boding well for gold."
Meantime in the Euro zone, money supply growth has been "steeply accelerated" by the European Central Bank's record cash injections to the credit markets since August...
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The Old Lady's in danger and the Pound is in peril. Or so we guess today. The gold market seems to agree. It's risen by 9% against Sterling in the last month alone. And as a cartoon by Gillray reminds us each morning, hung by the door here at BullionVault, the Bank of England's virtue has come under attack before. James Gillray's etching, Political Ravishment, nicknamed the Bank as the "Old Lady of Threadneedle Street". The tag has stuck ever since and in Gillray's cartoon, the young prime minister, William Pitt, tries to assault her virtue and get his mitts on her gold.
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Don't want to put your money at risk? Then don't put your cash in the bank. The safest place that any financial advisor will ever recommend, High Street banks simply offer a way for you to lend out your money. Without ever meeting your borrower. And without collecting all the interest he pays. Yes, there are protections and thanks to the taxpayer, the upper limit just rose from 31,700 to however much you are owed. But retail bank customers will pay dearly for letting Alistair Darling step in to fix this mess.
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"Northern Rock is a prime-only lender," says the distressed borrower itself today, "and credit quality on all its loan books remains strong. Three-months plus arrears in the residential book were 0.47% at the end of August, still under half the industry average." No sub-prime in them thar' loans! So why can't Northern Rock raise short-term funds at any price in the open market? Well, "in the first eight months of the year, Northern Rocks total net lending was up 43% over the same period in 2006, with net residential lending up 55%," as it proudly states today. Perhaps this aggressive growth explains the rest-of-the-world refusing to lend it cash.
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Credit extension in the UK looks set to slow fast! The Bank of England might not know a collateralised loan obligation when it sees one. But it said Tuesday that the average variable rate mortgage issued in August rose by 0.25% to a nine-year high of 7.69%. "Fear of retailing bloodbath when interest rates hit home," screams The Times in response. JJB Sports has cut its full-year forecast by one quarter. The CEO of Next warns the real crunch could hit just as Christmas arrives.
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Adam Leyland, editor of The Grocer the food and drink industry's favourite read says the cost of your weekly shopping bill could rise 30% by Christmas. It's already risen by 6% from this time last year. But as ever, it's somebody else's problem. "If I were [the chancellor] Alistair Darling or a pensioner, Id be very worried," Leyland says. Phew! Good job he's the editor of a weekly business-to-business magazine, eh? Your own correspondent confesses that he's terrified at the prospect of runaway inflation...
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Hazel Blears has been known to land a job helping to run the country no less! It just goes to prove how weird things can get if you're not careful. Put another way, "the correlation between GBP/JPY and the S&P 500 since the start of June 2006 stands at 95.8%," as Simon Derrick reports for Bank of New York Mellon. Regular readers might need to read that sentence twice to get over the shock; changes in the value of sterling against the Japanese yen have displayed a near-perfect correlation with the broad US stock market over the last year.
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Short of organising double-digit inflation, in fact, there seems little the authorities can do to revive confidence in no-income borrowers with bad credit records. And lo! President Bush will announce just that in a speech later today. "The president wants to see as many homeowners who can stay in their homes with a little help be able to stay in their homes," a senior official told the Wall Street Journal overnight. "We're not looking for an industry bailout or a Wall Street bailout. The focus here is on the homeowner." Put another way, the US government is about to
nationalise the housing market. If that sounds dramatic, then how exactly did you expect the Great Money Bubble to reach its climax?
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"We designed CCC's business model to withstand a liquidity event equal to the events of October 1998," says the head of Carlyle Capital Corporation, John Stomber, in a letter screwed out of him by angry investors, "when the demise of Long-Term Capital Management threatened the financial markets. [But] we believe the recent liquidity disruption is significantly worse than the events of 1998." Worse than 1998, eh? Who'd have thought it! And who would have been brave enough to plug a worse-than-LTCM event into their portfolio model...before pitching their hedge fund to prospective new clients?
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