The market seems to be selling-off on the back of limited bad news imo, apart from the dollar that is.

If you can hold your nerve and apart from any short term requirements to offload poor performing stocks, I have a couple!!, my advice would be sit tight. This does not have the feel of the tech(mining!) bubble at all. Difference being there are a lot of good fundamentals, unlike in 2000 when there were a lot of over rated nothing companies.

http://news.bbc.co.uk/1/hi/business/7397850.stm

Roll on Wednesday - lets see what they say.




UK inflation jumps to 3% in April

Many shoppers are already feeling the effect of higher food prices

UK consumer inflation reached its highest level in 13 months driven by high food and fuel costs, according to the Office for National Statistics.

The Consumer Prices Index (CPI) hit 3% on a yearly basis in April, up from 2.5% in March. The monthly rate was 0.8%, the biggest leap since May 2001.

According to the figures, the Retail Prices Index rose to 4.2% from 3.8%.

The inflation data would probably stop the Bank of England cutting interest rates in the near term, analysts said.

Analysts had expected CPI to reach 2.6%.

"It was a pretty horrific headline number," said Lee Hardman, an economist at BTM-UFJ.

"It limits the scope for monetary easing from the Bank, it will be hard for them to cut in June."

Budget changes

However, some analysts added that the main drivers of price growth were fuel and food costs, which higher interest rates did little to control or rein in.

In the current climate of slowing economic growth and a weakening housing market it was unlikely that the Bank would hike interest rates as price pressures were not being caused by an overheating economy, the analysts said.

The CPI figure is above the 2% target set by the government, and increases the chances that Mervyn King, the Bank's governor, will be forced to write to the Chancellor to explain the accelerating rate of inflation.

He has to write a letter to the Chancellor if the rate of inflation tops 3%.

Of the 12 types of goods measured by the CPI, seven categories saw prices rise in April compared with the previous month. Alcohol and tobacco were amongst the gainers after tax increases set out in the last government Budget.

Another significant reason for the higher inflation data was a sharp increase in electricity and gas bills after the six leading suppliers raised prices.

Higher power and gas costs contributed 0.2% to the increase in the CPI figure, the ONS said.

Consumers and companies are already feeling the effect of higher costs.

On Monday, data showed that manufacturing output dropped by its biggest margin in 6 months during April, with firms hit hard by rising raw material costs.

The Bank is due to release its economic forecasts on Wednesday.

http://everythingwarrenbuffett.blogspot.com/2008/05/citywirecouk-you-aint-seen-nothing-yet.html

Tuesday, May 20, 2008

CITYWIRE.CO.UK: You ain't seen nothing yet, warns Buffett

By Tony Bonsignore | 10:33:06 | 20 May 2008 Citywire.co.uk

Todays Financial Times headline - Four-Month Peaks Defy Gloomy Comments - says it all. On the one the hand veteran investors and esteemed bankers are lining up to warn that the worst of the financial crisis may be yet to come; on the other equity markets are hitting highs not seen since early January. One side has surely got it badly wrong.

The most notable bear is investment guru Warren Buffett, who yesterday warned that as far as the wider global economy is concerned the credit crunch is far from over. The Berkshire Hathaway chief executive predicts there are second and tertiary effects still to be felt', declaring: I dont think we are half way or even a quarter of the way through the impact on the general economy.

The Wall Street banking crisis was probably mostly over, he said, although he conceded that even this prediction might yet prove optimistic.

Perhaps most perceptive was Buffetts observation that the crisis was now hitting those who did sound things, rather than just the silliest folk. Ordinary homeowners facing a crippling increase in monthly repayments will know exactly what he means; meanwhile City bankers continue to live in luxury on the bonuses paid out in the years of plenty. Somewhere along the line the world got turned upside down.

Another veteran investor predicting tougher times to come is George Soros. Soross new book aims to dismantle the classic economists belief in the tendency of markets to move towards equilibrium. In contrast, Soros argues that markets tend towards massive boom and bust cycles, and that we are currently at the end of a 25 super boom.

What does this mean in practice? Soros warns that the recession in the US is likely to be longer and deeper than most currently predict. Perhaps even more chilling is Soross assessment that the UK is in an even worse mess than the US, given our dependency on an inflated housing market and our reliance on financial services.

One can only hope that Soros is wrong but it is difficult to disagree with his logic; if the US is being hit so hard, why shouldnt the UK follow? Isnt that the lesson of our economic history? Answers on a postcard, please.

The final bear worth a mention is ECB president Jean-Claude Trichet. In a carefully worded warning designed to temper optimism that the worst is behind us, Trichet says that growth in the Eurozone is likely to slow markedly over the rest of the year as the credit crisis spreads to the real economy.

Crucially, Trichet warns that the ECB will persist in its battle against inflation, and therefore keep interest rates at levels that may dismay business and certain member governments. The ECB cannot let the wage-price spiral out of the bottle, Trichet prosaically warned.

Perhaps most enigmatic, though, was Trichets warning that we are still in the middle of a very serious market correction. Given that equity markets have enjoyed a phenomenal rally in recent weeks and that the Dow and FTSE100 have climbed through the 13,000 and 6,300 barriers respectively in recent days, this is a difficult comment to interpret.

Is Trichet warning that this is a classic bear market rally and that we should expect things to come crashing to the ground sooner or later? That seems to be the implication. Perhaps the bulls should keep the champagne on ice, for the time being at least.

I suspect there's plenty of surprises out there still left to find. If another big storm hits then maybe more will come to the surface. Oil and commodities I think will drive the next big collapse, probably caused by a sudden slowdown in China late 08/early 09. Only time will tell though. Of course the world economy may well have cracked before then, especially if oil reaches the $200 mark. Interesting times.

In my opinion.

Strawbs.

http://money.cnn.com/2008/05/21/news/economy/fed_minutes/index.htm?postversion=2008052115

Fed sees economy getting worse

Ben Bernanke & Co. lower 2008 economic growth forecast and raise their projections for inflation and unemployment; says last rate cut was a "close call."

By Chris Isidore, CNNMoney.com senior writer
Last Updated: May 21, 2008: 3:37 PM EDT


NEW YORK (CNNMoney.com) -- The Federal Reserve sees worse economic problems ahead, according to new forecasts from the central bank released Wednesday.

The Fed lowered its economic growth forecast for the year. At the same time, it raised its projections for inflation and unemployment. This created a difficult economic combination that made the Fed's latest decision to cut rates a "close call" according to the minutes from last month's Fed meeting.

Stocks, which were trading a bit lower before the release of the minutes, fell even further after the new forecast was revealed.

The central bank said it now believes full-year economic growth will be between 0.3% and 1.2% this year, significantly below its previous forecast of 1.3% to 2% growth in January.

The Fed said in its minutes that members now expect the economy to shrink in the first half of the year -- the clearest signal yet that policymakers believe the economy is in a recession.

The Fed also raised its unemployment forecast for the year to between 5.5% and 5.7%, up from its earlier estimate of 5.2% to 5.5%. The unemployment rate was 5% in April.

In addition, the Fed boosted its projection for inflation. It said it now expects personal consumption expenditures to rise between 3.1% and 3.4% in 2008, a full percentage point more than its earlier expectation.

Even when soaring food and energy prices are stripped out, the Fed expects steeper "core" inflation than its previous estimate.

The Fed cut its federal funds rate, a key short-term rate, by a quarter- percentage point at the end of its last meeting on April 30. According to the minutes, that decision was viewed as a "close call" partly because of rising inflation pressures.

"I think they are stating more clearly that we are in a recession, but the main thing to take away from this is that they're not going to cut any further," said Gus Faucher, director of macroeconomics for Moody's Economy.com.

The Fed' indicated it is expecting a pickup in economic growth in the second half of this year, as the effect of its previous rate cuts and tax rebates to consumers start to impact the economy.

But while it said it expects the economy to recover a bit next year -- forecasts call for growth of 2% to 2.8% in 2009 -- the Fed still sees some weakness lingering into next year.

The central bank now thinks the unemployment rate in 2009 will be between 5.2% and 5.7%, up from an earlier projection of 5% to 5.3%. The Fed said it expects to see "noticeable slack" in the economy next year.

"They're not looking for a deep recession. But they're not expecting a heck of a lot of rebound," said David Wyss, chief economist with Standard & Poor's.

He added that the latest forecast is simply catching up with the consensus view among economists that the nation has already fallen into recession. He warned that the Fed's outlook may deteriorate even further in light of the spike in oil prices in just the past few days.

"Remember, this is their thinking of three weeks ago," Wyss said. "They might have even a different view on inflation and GDP today."

Keith Hembre, chief economist at First American Funds, said that it makes sense that the Fed is now paying more attention to inflation pressures.

Some believe the Fed's seven rate cuts since last September helped fuel inflation, especially the sharp run-up in oil prices, because the rate cuts have led to a weakening of the dollar.

So Hembre thinks the Fed wants to send the clear signal that it is on hold on interest rates for the foreseeable future.

"They don't want to exacerbate it by the expectation of further rate cuts," he said.

http://www.citywire.co.uk/personal/-/news/money-property-and-tax/content.aspx?ID=305368&re=3173&ea=166581

Innocent bystanders will suffer as credit binge ends, Mervyn King warns

By Iain Martin | 13:53:35 | 10 June 2008

The governor of the Bank of England has warned that some innocent bystanders may lose their homes altogether in a speech in which he compared the banks to party goers and the central bank as the chaperone that would take the punch bowl away just as the party is getting going.

In a much-anticipated speech at the British Bankers' Association's annual conference, Mervyn King questioned who would get home safely when the party ends, warning of the damage that investment banks, monoline insurers, and even hedge funds, could do in the event of their demise in the credit crunch.

King said that the Bank of England and the government needs to create a system to protect financial stability similar to its structure to manage inflation.

These reforms would be set out in the Bank of England's Red Book to be published later this year, said King at the conference.

'We need to develop a equally strong framework for financial stability,' said King in relation to the work of the monetary policy committee.

Pricing and the stigma of borrowing from central banks was crucial to the success of these institutions' attempts to bring liquidity back to the market, said King.

King also said it was important to find a way for banks to fail in a orderly way.

Pre-funding, though it was unpopular with banks, was vital to limit risks to the wider financial system, said King.

'A degree of pre-funding is sure to be unpopular before the fact but it lessens the burden on the system in times of crisis,' he said.

'Stability in the market is important to the whole UK economy,' said Alan Knowles, banking partner at Scottish law firm Brodies.

Having been through a period of relative calm (the eye)......are we now about to hit the other side of the credit storm? High inflation, high oil prices and massive asset depreciation....

Personally I think a crash in equities, followed by a collapse in oil and other commodities can't be too far away. High prices and no money must surely give way to a collapse in demand at some point.

In my bearish opinion... ;-)

Strawbs.

I agree, Strawbs, oil price can't go up forever. Economy will collapse globally and demand soon declines.

Yep. I think oil is probably a good long term play (because we'll run out of it one day), but I suspect it won't be long before these high prices really hurt the world economy. A serious slowdown in China and the rest of the world is getting ever closer, and that should reverse the oil price direction for a while. You only have to look back in history to see that every peak is followed by a slide, house prices, equity prices, oil prices, they all collapse eventually. Maybe one further big spike during the hurricane/driving season will be enough to tip the balance....

In my opinion...

Strawbs.

AIM market is still at high levels, perhaps when we see AXX go back to its recent prior low the bear will be over, 1 year ? 2 years ? The past says a small rally may occur, but another good 15 months of downwards pressure may be coming after a relief rally.




.

It is just another fool's rally.

Yes.. I refer you to posts 848 and 961.

actual levels of the AXX are fairly meaningless when looking back that far.

What would be more interesting would be to know P/E of the AXX over that time. I suspect that in 2000/2001 the p/e was ridiculously high, which led to the crash. At the current time and looking at the no of small companies with low single digit p/e's, i would not be surprised to see the AXX p/e being close to an all time low, which could indicate it may not have much further to fall - if any.

The major factor that effects the AIM market is spare cash in the hands of the UK population that can speculate on AIM stocks.

Which is why the coming fall ?? may be more severe than the last bottom.

Lots more bad news to come...........


http://money.cnn.com/2008/07/20/news/economy/paulson_economy.ap/index.htm?postversion=2008072014


Paulson braces public for months of tough times

Treasury secretary says problems in the banking system are a "manageable situation" - but that it will take time to work through them.

July 20, 2008: 2:47 PM EDT

WASHINGTON (AP) -- Treasury Secretary Henry Paulson sought to reassure an anxious public Sunday that the banking system is sound, while also bracing people for more troubled times ahead..................

A very good post on AFN - and this poster knows their banking stuff.


Chairman2 - 20 Jul'08 - 23:49 - 11666 of 11680

Not many bank bulls here -

I think most of what is currently debated is in the share
prices - including credit default projections, the lower
expectations of RBS over Barclays, Lloyds lack of mistakes etc.

More bad news is certain to come all the way through to 1st Quarter
2009 at the very least. But the market does act as leading
indicator and will turn well before the good news actually6 arrives.

For those who believe we are approaching the bottom the proven
strategy is to start a regular small-sums buying programme. The
advice is based on the the difficulty of recognising the exact bottom
and the rapidity of recovery once it starts.

Personally I would suggest waiting some moree. There is one big bad
factor that I do not believe is priced into bank shares at least by
PI's. Most PI's are holding or buying bank shares because of the juicy
looking (historic) yields. But I dont think they will see dividends
at that level for a very long time.

Below is a sour comment I posted on the Lloyds Bank board after my
reading of this weekend's press:

Do not rely on Banks to pay dividends - they will not be allowed to
(Scrip dividends are worthless rubbish -forced rights issues by another
name)

Neil Woodford of Invesco Perpetual quoted in Sunday Tel Today.

Elsewhere articles in all papers make clear Al & Leic board given no option
by FSA but to bow to a shortgun t/o by Abbey/Santander.

FSA also alledged to remain very worried about future trading for the
mortgage banks (yep that includes Ye Olde Nagge's C&G)

Finally consequences of the humungous failure of the Halifax Rights
Issue (forced on the HBOS Board by the incompetents at the FSA)
still to be worked out. But the small-minded pea-brained regulators
in Canary Wharf do not take kindly to two fingers being shewn by
London Investors to bank rights issues (their first ploy after the
Northern Crock rescue fiasco)

Watch this space for more market value destroying initiatives from
those charged with "Preserving the integrity of the finacial system".
(You have to laugh dont you?)

http://www.citywire.co.uk/personal/-/news/markets-companies-and-funds/content.aspx?ID=308740

Oil price could reach $250 by next year, says AAA-rated manager

By Danielle Levy | 10:34:39 | 21 July 2008

Citywire AAA-rated Nicolas Komilikis of Amiral Gestion believes it is incredibly unlikely that the oil price will go down and says $250 a barrel by next year is not beyond the realms.............

I am biased as I hold plenty of BEG and recession is good for them, but it shows the problems are only just starting, and going to get a lot worse it seems.

http://www.begbies-traynor.com/companies_with_%22critical_problems%22_increase_almost_700_per_cent_/404

Companies With "Critical Problems" Increase Almost 700 Per Cent

Begbies Traynors Red Flag A!ert Statistics signal increasing difficulties for UK companies

Worsening economic climate results in seven times as many companies experiencing Critical Problems in Q2 2008 compared to Q2 2007
Over 4,200 companies experiencing critical problems in Q2 2008
Construction, IT and retail sectors suffering the most
Credit Crunch deepens with nearly 30 per cent increase in critical problems compared to Q1
Begbies Traynor, the UKs leading independent business rescue, recovery and restructuring specialist, today reveals that the number of UK companies experiencing Critical Problems in the second quarter of 2008 has increased substantially over the same period in 2007. Staggeringly, 4,258 companies faced critical problems (those with CCJs totalling over 5,000 or Winding-Up Petition related actions) in the second quarter of 2008 compared with 542 as in the same period last year, an overall increase of 685 per cent.

The research also shows that conditions are getting more difficult as the year progresses, with an increase in the number of companies facing critical problems of nearly 30 per cent (28.68 per cent) in Q2 2008 compared to Q1 2008.

Ric Traynor, Executive Chairman of Begbies Traynor Group, commented, The last set of Red Flag A!ert Statistics showed the effects of the credit crunch were just beginning to be felt by UK businesses. With credit conditions still tightening, these new figures demonstrate that the ................................

http://www.independent.co.uk/news/business/news/us-lenders-fear-worst-after-two-more-fail-878795.html


US lenders fear worst after two more fail

By Stephen Foley
Monday, 28 July 2008

American bank executives are braced for another volatile and dangerous week after the collapse over the weekend of two more regional lenders.

First National Bank of Nevada and First Heritage Bank NA in California were taken over by the banking regulator after running short of money on Friday.

The Federal Deposit Insurance Corporation, which seized their assets, appeared last night to have averted a customer panic, with no reports of queues at branches. More US banks seven in total have failed so far this year than did in the whole of the previous four years, and it is just two weeks since the country's third-biggest banking collapse ever. That failure, of IndyMac, triggered scenes reminiscent of a run on the bank as customers queued for their cash.

Unlike in the IndyMac case, the FDIC has sold the customer accounts of the two latest casualties to another regional player, Mutual of Omaha Bank, which guarantees all deposits.

Analysts believe hundreds more banks could still fail. On Saturday, a housing bill aimed at stemming the tide of foreclosures was passed by Congress, and it is expected to be signed by President Bush this week.

While the bill may provide relief to struggling homeowners, and includes provisions for the federal government to prop up mortgage giants Fannie Mae and Freddie Mac, it is light on measures to help the regional banking system. A rally in financial sector stocks early last week was reversed on Thursday and Friday.

Attention is likely to focus once more on the performance of Washington Mutual shares, which lost a third of their value last week. The banking giant said it had cash and liquid assets of $50bn and was well able to finance its lending operations.

Ahead of us getting into it, I wonder what peoples outlooks are for the Autumn.


For myself I see the present rally is just a bear market rally, a relief rally that comes after weeks of sustained selling, it is only normal for buyers to come in to trade the move up, before the next leg down.

What could drive the next leg down ?

That could be the reporting period in late August through September.


Although many an analyst is trying to poke the embers and raise a rally talking of PE's, the thing they are all missing is the fact we have as yet not had the round of "missed earnings forecasts" "warnings going forward of slowing growth, reduced growth" etc... and then the round of downgrades than ensues this.

I think too many people are rushing in to buy what is clearly not a market bottom - too much media it trying to stoke up the fires and get people buying (for their own gain ?) - and this could all go bang over the Autumn/Winter period.

I would certainly, at the moment, expect the market lows of March/April 2009 to be well below where we are today.

A week or so ago on Bloomberg some fund manager mentioned that there is the highest ever number of short positions open and also 3.5 trilion dollars in cash waiting for the right time and as you say this isn't it!