Obama Demonises Oil Speculators

President Obama has today castigated oil speculators for manipulating the oil market, and has proposed new measures to limit speculation in the oil markets,.

This is rather ironic, as only a month ago the Whitehouse manipulated the oil market by leaking rumours (and then denying them) of a release of strategic reserves which of course sent the price of oil down.

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Contagion

The fears of the contagion, from the Irish sovereign debt crisis, spreading appear to be justified. Spain is now the target of the market's fear and greed.

Spanish bond prices are rising, and the Euro is falling.

The EU's bailout fund of Euro 1 Trillion will not be enough to prop up Spain, Greece, Ireland and Portugal.

Something has got to give.

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The End of Sterling?

Jim Rogers, who co-founded the Quantum fund with George Soros, has told Bloomberg:

"I would urge you to sell any sterling you might have. It's finished. I hate to say it, but I would not put any money in the UK".

In the short term Sterling will undoubtedly fall further (and many people who short it will make fortunes out of its demise). Indeed Sterling today fell below $1.40 to its lowest point in over seven years, because of concerns about the banking crisis and debt levels.

However, currencies strengths are relative. No other developed country will escape the recession. The Euro will, in the not too distant future collapse as the folly of the "inflexible" high interest rate policy of the ECB is laid bare. The Dollar will also fall as America's economy worsens.

Sterling will rise again.

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The Credit Crunch

The ongoing, so called, "credit crunch" may well have repercussions in areas not immediately apparent.

Much of the borrowing used by people/companies for their investments in the bundled debt products that have been over valued, has been financed using cheap borrowed Yen.

This is known as the Yen Carry Trade. Now that the debts are unravelling, so too is the Yen Carry Trade; this has consequences for the Yen itself, as companies liquidate their positions and pay back their Yen borrowings.

The cost of borrowing Yen is rising, as such those trades and investments that were once financially viable are no longer viable.

One area where there has been heavy use of Yen borrowings, both by companies and Japanese housewives, is that of currency speculation in the Turkish Lira. It is very likely that, if the crunch continues, the Turkish Lira will collapse as speculators pull out.

This in turn will severely damage the profits of the Japanese housewives, thus negatively impacting the Japanese economy.

The lesson here is, don't invest what you can't afford to lose.

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Bricks and Mortar

The increasing reliance of the British economy on the housing market was revealed yesterday, when the government released figures that show that a staggering 60% of the UK's £6.5 trillion wealth is now tied up in property.

The Office for National Statistics (ONS) said that the value of Britain, if it were up for sale, has risen by over 5% (an increase of £326BN in 2005).

The increase was more than accounted for by the rise in the market value of Britain's housing stock.

The ONS figures show that the wealth of the UK is now highly sensitive to movements in the housing market, particularly given the declining importance of manufacturing to the economy.

Britain is now worth £6.5 trillion, with the UK housing stock accounting for £3.9 trillion of that figure.

The trouble is that a large factor within the "value" of the housing stock is that of speculation, rather than fundamentals.

This bodes ill for the economy as a whole, given that speculative bubbles have an annoying tendency to burst.

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Prudential Asked For Views on Break Up

The Telegraph reports today that the Prudential's chairman, Sir David Clementi, has received a letter from a fund manager with a "substantial holding" asking him to explain the board's thinking on a break-up.

The shareholder notes that there could be advantages to splitting the business up.

The letter is a sign of the frustration that is felt amongst investors over Prudential's UK performance compared with the performance of Asian/US business.

Market speculation has increased, as it is reported that hedge funds have been buying Prudential over the past few weeks.

The market is trying to push the Pru into demerging, we shall see.

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