Sunday, September 21, 2008

Foreigners pulling their cash out of the UK

It is amazing how the main stream media miss the really big financial stories.

Last week, the BoE published data on the external liabilities of UK banks. At the risk of over-simplifying things, this number measures bank deposits of foreigners held here in the UK. What did this number show? Foreigners are pulling out their cash.

UK based banks hold huge amounts of external liabilities. In March 2008, the number peaked at almost ₤8 trillion. That is about 5 times UK GDP. However, between March and June, external liabilities fell by ₤740 billion. That represents about a 9 percent fall. As the chart above illustrates, this is not something that has happened recently.

As external liabilities were falling, UK banks were reducing their assets. In other words, they were selling off their positions in order to finance their withdrawals.

Here is a question - why do you think foreigners are pulling their cash out of the UK?

Credit card write-offs

In the third quarter of this year, UK banks wrote off ₤875 million worth of credit card debt. During the last five and a half years, about ₤13 billion had to be written off.

Household debt distress has been around for quite a while, yet the Banks kept on lending. The profits from those who paid their credit card debts outweighted the losses from those who didn't.

Jim Cramer and the equity advice from hell

This is youtube at its best. US stock picker, Jim Cramer, exposed for his dangerous financial advice.

Saturday, August 9, 2008

No more savings any more

UK savings have virtually evaporated. Too much consumption, too much debt and far too much reliance on housing equity.

Stealth tax

With each passing year, more people are falling into the higher tax band. Currently, almost 4 million tax payers are regarded as high income earners. That is about one taxpayer in eight.

Back in 1990, a little over one million tax payers found themselves paying the higher 40 percent tax rate. Every year since then, the threshold has trapped progressively more taxpayers. Currently, the threshold is set at just £36,000 after personal allowances. It is comfortable wage, but hardly a fortune.

The 40 percent band captured these additional taxpayers during a period of high growth. Today, the economy is slowing, and the treasury will be looking for new sources of revenues. With a little higher inflation, limited increases of the 40 percent threshold provides an ideal way of filling up those tax shortfalls.

Just wait, it will not be long before a majority of taxpayers will be labeled as "high earners".

Sunday, July 6, 2008

Iranian inflation hits 26 percent

Iran are pushing ahead with building a nuclear bomb, but can not keep a lid on inflation.

TEHRAN (AFP) - Iran's inflation rate, which has provoked intense criticism of the government, topped 26 percent in June, according to a central bank statement published in the press on Saturday. "During the Iranian month of Kordad (to June 20) inflation reached 26.4 percent compared with the same month a year ago," according to the statement published in the economic newspaper Sarmayeh.The previous month, annual inflation was running at 25.3 percent.

President Mahmoud Ahmadinejad has been blamed by many economists for directly fuelling the price rises by ploughing huge amounts of cash into the economy to fund local infrastructure projects.

Monday, June 30, 2008

More shocking inflation numbers from the eurozone

Sooner or later, central banks will have to raise rates. The latest inflation shock comes from the eurozone area - 4 percent and rising.

Yearly inflation in euro nations hit a record 4 percent in June, the EU statistics agency Eurostat said Monday, adding pressure on the European Central Bank to raise borrowing costs even as the economy slows.

ECB officials have signaled they may hike their key interest rate on Thursday from 4 percent to 4.25 percent to try to cool prices — although that would raise costs for home buyers and companies seeking credit, further slowing the economy.

It may also weaken the dollar by encouraging investors to seek higher returns by
placing funds in higher-interest euro currency accounts. That could send oil
prices, which hit a record above $143 per barrel Monday, higher as well.

ECB President Jean-Claude Trichet has insisted that keeping prices
stable is his main task and the bank doesn't face a trade-off against economic
growth or job creation. That way of thinking does not fit this current wave of
inflation, he said last month.

Instead of indicating an overheating economy, inflation — now running at the highest level in 16 years — seems to be acting as a brake on Europe's economy as shoppers steer clear of major purchases.