Fed slashes interest rates again

[cHodAX]

This is the third big interest rate cut by the U.S. Federal Reserve in less than 3 months, they are trying to stave off a recession at home but christ it is having a negative effect overseas. If they aren't careful they are going to panic investors and cause a run on the market the likes of which we have't seen since Wall Street in 1929. The credit crunch combined with the quadrupling of grain prices and the upward pressure of oil prices is really starting to bite now, I doubt our own economy can sustain much more without completely stalling growth and perhaps forcing us into our own recession.

BBC NEWS | Business | Federal Reserve slashes US rates

Worrying times no doubt, I just don't see how the American's can avoid a recession this time around but it seems like they are betting the house on delying the inevitable long enough to get another republican elected to the white house. Your thoughts?

 

[inactionman]

Woot! Stagflation/depression here we come, as the idiots in charge are more interested in saving face than solving the problems (as ever)!

I'm going to be switching half my savings to gold bullion coins, as that tends to hold it's value well in these kind of situations when inflation > interest rates, and savings are pretty much useless!

 

[Tom]

This is really bad news. I sat on my bed the other night and broke it.

 

[cHodAX]

This is really bad news. I sat on my bed the other night and broke it.

Too many pies?

 

[cHodAX]

A great (and quite funny) explanation as to what has caused all this trouble....


subprime works - Google Docs

 

[old.user4556]

So what does this mean for the UK economy, in your opinions? Lower house prices? Recession? Cheaper stuff?

 

[cHodAX]

So what does this mean for the UK economy, in your opinions? Lower house prices? Recession? Cheaper stuff?

The U.S. is the biggest consumer economy in the world, if they go into recession which looks more than likely it has a knockon effect for every trading nation on the planet. Our own growth forecasts have already been slashed twice in the last 6 months and we are getting pretty close to economic stagnation. It wouldn't take much to push us into recession either, a terrorist attack or another major international bank getting into trouble could be all that it takes to cause the markets to plummet and contrary to what many people think it is the investment markets that drive the whole global economy. If the investments dry up then economic growth goes with it and a worldwide recession follows.

Generally prices on goods go up while the economy is in recession and house prices drop somewhat, it usually takes 4-5 years to emerge from that kind of slump but this could be much worse if the markets don't start to realign quickly. With very low confidence between banks this could roll on for years and I don't see how the Fed slashing interest rates in a panic is going to stem the bleeding right now, if anything it is just causing more negativity in the markets and making the problem worse but then I am not an economist so what do I know anyway?

 

[old.user4556]

Financially, I'm planning on sitting tight this year until this plays out. I'm employed in the financial sector, and I'm now worrying a lot about what this means for my job. If Bear Stearns can vapourise overnight, there is a real risk that a worldwide recession could knock over another UK bank - one of the big four this time. Share prices are through the fucking floor and don't have much sign of a recovery.

 

[bob269]

So what does this mean for the UK economy, in your opinions? Lower house prices? Recession? Cheaper stuff?

Knock on is pretty instant, mon/tue the UK stock market went to shit so any shares you may have would of seriously dropped due to some US bank having to sell out,

As for interest rate, I had an email this afternoon from Lloydstsb telling me my savings account interest had already dropped.

I'm sure from a buying point of view its a bonus but anybody trying to save or invest is screwed.

 

[cHodAX]

Financially, I'm planning on sitting tight this year until this plays out. I'm employed in the financial sector, and I'm now worrying a lot about what this means for my job. If Bear Stearns can vapourise overnight, there is a real risk that a worldwide recession could knock over another UK bank - one of the big four this time. Share prices are through the fucking floor and don't have much sign of a recovery.

That is the thing, when guys in the industry like you are getting the negative vibes you know that things are in turmoil. Right now the situation could go either way or just drag on for another year with the markets just going yo-yo from one week to the next. Personally though I can see America going into a fairly deep recession for the next 4-5 years and it will drag the rest of us down with it, growth in the U.K. will likely end up at zero until the markets start to recover but as I said before it only takes one major incident at time like this and we will be all plummeted into recession.

 

[Jonty]

Hi guys

As others have said, I'm no economist, but things are certainly unstable. Many of my friends invest in the stock market, and the value of their assets has seen huge rises and falls lately, so they have no idea whether to pull out or hold on.

I'm curious if now would be a good time to invest. If prices are low and you're in the for long-term, you may be able to get a healthy return if you choose carefully.

Many things are screwed up with various major economies, though, especially the over reliance on credit. Thankfully I'm young and don't have big assets like houses or pensions to worry about, but obviously the same can't be said for my family and friends.

It should also be noted that other major economies like China are also rapidly changing (from cheap labor to high-value services, with a larger and more self-reliant consumer market) so the next few years will be an interesting time.

Kind regards

 

[DaGaffer]

I think this is the start of a major realignment in the world economy. The US is no longer the largest consumer market (the EU is), and its not for raw materials anymore (China is), and the weakness of the dollar is undermining it as the key trading currency. Then you have the Americans doing themselves no favours by pissing all their reserves away on foreign wars (a trillion dollars in Iraq?), and something's got to give. OPEC are already starting the move from pricing oil in dollars to Euros; if they get the transition even slightly wrong, China will flush their dollars and the US will get a recession that will make the 1930s look like the 1950s. The UK would get burned as well, although not as badly (our mix of trading partners means we're not as reliant on the US as we once were). Scary times. Personally I'm trying to minimise my personal debt this year (which is just credit cards now), because I'm not wildly confident about the future.

 

[pcg79]

Financially, I'm planning on sitting tight this year until this plays out. I'm employed in the financial sector, and I'm now worrying a lot about what this means for my job. If Bear Stearns can vapourise overnight, there is a real risk that a worldwide recession could knock over another UK bank - one of the big four this time. Share prices are through the fucking floor and don't have much sign of a recovery.

well it really depends. bear went down as it had a big face in RMBS (residential mortgage backed securities) and $13bn exposure to these securities on its balance sheet. its activities were heavily concentrated in the US and it is/was a pure investment bank - no retail activity.
wrt the big 4 banks: rbs is fairly big in debt (bad), barclays capital is big in commodities (good). hsbc lost a bit of cash in america via countrywide, a big mortgage dealer but otherwise remains strong in europe and have made a push towards africa (recently). i dont know much about lloyds tbh but i dont think they have a very big market face.
remember northern rock went down after they couldnt get anymore funding on the money markets - they were one of the few to do this and most retail banks (including the big 4) either did not do this anyway, or have scaled back and focused on retail deposits for their funding (which is why loads of banks are advertising accounts with 8% interest and stuff)

 

[Tom]

Too many pies?

Expecting 6 years from a £100 Argos bed was probably a bit optimistic.....

 

[old.user4556]

Expecting 6 years from a £100 Argos bed was probably a bit optimistic.....

Got your money's worth there

 

[Tom]

Now I have to spend close to a grand on a new one (one that'll last 20 years)

 

[yaruar]

Hi guys

As others have said, I'm no economist, but things are certainly unstable. Many of my friends invest in the stock market, and the value of their assets has seen huge rises and falls lately, so they have no idea whether to pull out or hold on.

I'm curious if now would be a good time to invest. If prices are low and you're in the for long-term, you may be able to get a healthy return if you choose carefully.

Many things are screwed up with various major economies, though, especially the over reliance on credit. Thankfully I'm young and don't have big assets like houses or pensions to worry about, but obviously the same can't be said for my family and friends.

It should also be noted that other major economies like China are also rapidly changing (from cheap labor to high-value services, with a larger and more self-reliant consumer market) so the next few years will be an interesting time.

Kind regards

Now is not a good time to invest. Not unless you are really really good, look at all the serious investors who've now lost their shirts on Sterns because they didn't believe it would tank (I could have told them that it was going titsup from about 8 months ago and i'm not even particually clued up on the markets.

Will be interesting to see if the commodity bubble bursts as well as things such as oil, gold, foodstuffs and metals are all on record highs, question is whether they are realistic ones especially with manufacturing in china now collapsing in on itself.

There will however be some people making a fortune in the current market, but there are always some gamblers who hit the big time once in a while.

It's going to be a bad few years for the financial markets, things will get a lot worse before they get better. The scary thing is that the insurance market is in an even worse state than the credit derivitave market but that's all being hushed up at the moment.

 

[old.user4556]

Colleagues at work are very nervous.

 

[inactionman]

Yeah, it's pretty tense here in the city, but that's because lots of job losses are expected this year.

Inflation adjusted gold is still pretty undervalued, which is why I'll be buying some.

 

[old.user4556]

I blame the fucking media.

Bank of England

The Bank of England on Wednesday denied that any UK banks were in trouble.

"No meetings have taken place to discuss problems with any institution in the UK," said a Bank of England spokesman.

But the BBC has learned that the Bank of England has asked the Financial Services Authority to investigate whether speculators have been spreading false rumours about banks to cash-in on falling shares.

In a process known as "short selling", traders can make money by agreeing to sell shares in the future at a fixed price. If the shares fall in price they make a profit.

There has been rumours that one of the big four have been going to the BoE for emergency cash, and it's just untrue. Investors are believing the hype and offloading stock. However the media aren't choosing to report what the executive have told them, instead they're choosing to report the "rumours".

 

[Chilly]

stupid, greedy fucking banks offering loans to twats who will never be able to repay. What did they honestly expect? The markets are collapsing because there are too many gamblers in charge of very large sums of money.

Dunno about you lot but I'm gonna take advantage of the halifax fixed 6.2% cash ISA they have just put out to get some liquidity on their books.

 

[old.user4556]

They don't need liquidity.

 

[inactionman]

The problem is that unless confidence was really hit in banks they wouldn't be susceptible to these rumors. When you consider the whole banking system is built on confidence...

What really gets my goat is that the FSA only steps in when there are speculative rumors to make money on the downturn, nothing about when it's an upturn....

The whole banking system is fracked. Most american banks are functionally bankrupt, and I'm not sure ours are far behind.

 

[SilverHood]

A lot of the problems are down to rumours in the market. I'm sure Bear Sterns had a bit of a liquidity problem, but people were short selling BSC shares (ie profiting if price went down)... and the rumours got so bad that no one was doing trades with Bear Sterns until their position could be confirmed.

When his happend, Bear Sterns clients started pulling money out, it became a bank run, and the rest is history.

A percieved problem became real. The same thing happend to Lehman Brothers, and HBOS. It's hedgefunds manipulating the markets.

What the fed tried to do is what Bank of England should have done with Northern Rock - offload it as quickly as possible to another rival. If Bear Sterns had defaulted on its counterpositions, we'd be in a real shitter, instead of just a wobble. If Lloyds had taken over Northern Rock, it would have cost 30 bill and the saga would be done by now, and we wouldn't have doubts about the UK fiscal system.

Most people in the financial sector are worried about their jobs, $18 bill writen off so far, and there's still more bad mortgages on the balance sheet that need to go somewhere. On the bright side, my area (commodities) is making boatloads of money, and hiring new people all the time, so there's hope still.

 

[Chilly]

next giant market for commodities is africa I rekon