Pessimistic Financial Markets

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Pessimistic Financial Markets

Pessimistic Financial Markets By: Peter Jones The markets are at their lows as investors shun trading equities and bank liquidity stubbornly refuses to move Libor back into more reasonable territory. 3 month Libor is still high whilst base rates are falling. That shows that it still does not really matter what the central banks do to the official rates or do in liquidity injection, banks are still wary of lending to each other. In reality this is not exactly surprising because, for all of the headlines about equity stakes and huge sums being added, aside from a few smaller European countries nobody is yet guaranteeing all depositors their funds. The institutions who lent to the Icelandic banks stand as a warning to everyone who believes that waving a wand will make all the problems go away. Some two thirds of all sums lent will have to await the legal and auditing process to wind its slow way to a conclusion. We are now into the second phase of the market fall where fund liquidation will start to impact any potential rally and all good news will be taken badly. Any bad news will be taken even worse. Markets tend to get into these ruts where dealers and analysts look at all data from either a negative or positive stance. At the moment (and probably for some considerable time) we are going to be in a negative phase. Looking at the retail market, the shops are gearing up for the Christmas sales and for many of the smaller chains we may be seeing, literally, a do or die scenario. Even the larger companies were kicking up a fuss over the last set of rent reviews. The quarterly payments due in December may kill off quite a few ?names?. UK Government finances will also be of concern to watchers from the sidelines. UK finances are swiftly deteriorating and this is before the downturn really starts to bite. Government expenditures were rising by 6.1% even prior to any stimulus packages having been announced. That is also prior to the huge dislocation from tax payers becoming tax recipients. And then there are corporation tax receipts driving into the ground. For all the opprobrium poured onto the banks, they were huge contributors to the exchequer (billions a year). It will be many years before these revenues replaced, if ever. The falling price of oil will also not be welcomed by many in the Treasury. The reason that this is a problem for investors, whether you are spread betting, speculating via shareholdings, trading CFDs etc is that the more the state needs from the private sector to balance its books, the slower growth will be and the more profit margins will fall. The problems built up in Government finances over the last ten years will, I fear, be with us for decades to come. Boring items like keeping the funding going on current expenditure will run into the completely unfunded pension?s liability. Local Taxes will have to rise exponentially to pay for council employees final salary entitlements just as the economy looks to be struggling. If you are trading the markets note that spread bets carry a high level of risk to your money and may not suit all forms of investor. You can lose more than your initial investment so make sure you only speculate with capital that you can afford to lose. Likewise make sure you understand the risks involved and seek independent financial advice where necessary.