Market View - What's happening to the economy in 2009?
As we start the new year the only NEWS that is broadcast seems to be either confirmation of the global economic crisis and the continuing trouble in the middle east. Unfortunately the same NEWS is reported many times and this can cause severe pessimism within the country as a whole. You can either start looking at the glass half full or half empty. I for one always look at things half full but am prepared for the worst.
This is probably one of the best times for the private investors to start taking advantage of the markets in the UK & abroad.
Stocks are priced very competitively and the dividends paid can equate to a lot more than any interest paid by the cash strapped banks. Additionally there are three and five year bonds that are considered safer investment vehicle for the private investor.
Interest Rates Lowered to 1.5%
Last week Bank of England lowered interest rates to 1.5%, the lowest level in the banks history.
The purpose is to encourage the banks to lend money to business and consumers. As written previously this will have little or no affect. The dangerous reality is that banks do not have the money to lend through way of deposits.
When the government bailed out the banks they simply helped to clear the banks debts, and the banks have had not time to gain sufficient cash reserves to create the liquidity that the country needs.
The simplest way to improve the money flow is for the tax payers money to be loaned through banks or directly by government to businesses and consumers. Unfortunately the government may have to go further into debt in order to kick start the economy.
Gordon Brown has announced that there will be increased funds made available for businesses to start employing people. During a minor correction or slowdown this would be an effective strategy. The current economic climate requires liquidity so business can buy & sell there services to customers and this measure is not addressing this.
UK Recession
At the end of January, the GDP figure will be announced for the last quarter and is likely to confirm that the UK is in Recession.
Government expects the UK economy to contract to -2.6% (http://www.hm-treasury.gov.uk/d/200812forcomp.pdf). This figure is worse than the recession of 1980/1981.
In 1980/1981 the banks were able to function, they had deposits and the money markets were not leveraged as they are now. A figure of -2.6 can seem optimistic and it is an unfortunate reality that a negative GDP of -4.0% may be reached.
FOREX
Forex is the largest instrument ($2.5-$3.0 trillion) that is traded and without doubt the most liquid. In this weeks posting we will look at the GBP/USD and USD/JPY. The USD has performed strongly against the GBP from middle of 2008 and well against the JPY from August.
GBP/USD
The GBP is heading further down against the USD. 1st Target will be the lows of December 2008, at 1.4371. The second target will be 1.3250 area. If the market were to turnaround and then the target for the bulls will be 1.6673 and 1.8640+.
I will be looking to short the GBP against the USD.
USD/JPY
The USD is very strong against the JPY. The targets are the lows of December 2008, 87.06 followed by a longer term target of 72.55 and an intermediate target of 80.60.
I will be looking to short the JPY against the USD.
Indexes
FTSE100
No change from last posting.
DJ30 & SP500
No change from last posting.
As we start the new year the only NEWS that is broadcast seems to be either confirmation of the global economic crisis and the continuing trouble in the middle east. Unfortunately the same NEWS is reported many times and this can cause severe pessimism within the country as a whole. You can either start looking at the glass half full or half empty. I for one always look at things half full but am prepared for the worst.
As somebody ones said that "you make your money when you buy and not when you sell"
This is probably one of the best times for the private investors to start taking advantage of the markets in the UK & abroad.
Stocks are priced very competitively and the dividends paid can equate to a lot more than any interest paid by the cash strapped banks. Additionally there are three and five year bonds that are considered safer investment vehicle for the private investor.
Interest Rates Lowered to 1.5%
Last week Bank of England lowered interest rates to 1.5%, the lowest level in the banks history.
The purpose is to encourage the banks to lend money to business and consumers. As written previously this will have little or no affect. The dangerous reality is that banks do not have the money to lend through way of deposits.
When the government bailed out the banks they simply helped to clear the banks debts, and the banks have had not time to gain sufficient cash reserves to create the liquidity that the country needs.
The simplest way to improve the money flow is for the tax payers money to be loaned through banks or directly by government to businesses and consumers. Unfortunately the government may have to go further into debt in order to kick start the economy.
Gordon Brown has announced that there will be increased funds made available for businesses to start employing people. During a minor correction or slowdown this would be an effective strategy. The current economic climate requires liquidity so business can buy & sell there services to customers and this measure is not addressing this.
UK Recession
At the end of January, the GDP figure will be announced for the last quarter and is likely to confirm that the UK is in Recession.
Government expects the UK economy to contract to -2.6% (http://www.hm-treasury.gov.uk/d/200812forcomp.pdf). This figure is worse than the recession of 1980/1981.
In 1980/1981 the banks were able to function, they had deposits and the money markets were not leveraged as they are now. A figure of -2.6 can seem optimistic and it is an unfortunate reality that a negative GDP of -4.0% may be reached.
FOREX
Forex is the largest instrument ($2.5-$3.0 trillion) that is traded and without doubt the most liquid. In this weeks posting we will look at the GBP/USD and USD/JPY. The USD has performed strongly against the GBP from middle of 2008 and well against the JPY from August.
GBP/USD
The GBP is heading further down against the USD. 1st Target will be the lows of December 2008, at 1.4371. The second target will be 1.3250 area. If the market were to turnaround and then the target for the bulls will be 1.6673 and 1.8640+.
I will be looking to short the GBP against the USD.
USD/JPY
The USD is very strong against the JPY. The targets are the lows of December 2008, 87.06 followed by a longer term target of 72.55 and an intermediate target of 80.60.
I will be looking to short the JPY against the USD.
Indexes
FTSE100
No change from last posting.
DJ30 & SP500
No change from last posting.
Labels: bank of england, forex, gordon brown, investor, private investor, stocks
posted by Bull Kicker at
22:58
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