I like to trade. I do ok. But at the moment the markets are not the easiest to read. My Crude Oil spread bets have hit a bit of a resistance level and the FTSE is at a fairly solid support level. If I just want to get out for a while rather than face the unknown then what to do? The hunt for safety is becoming ever more problematic. The recent fallout in commodity values has reminded those who had forgotten that, as the Financial Spread Betting adverts always tell us, “Prices may fall. Past performance gives no guarantee of future returns and so on”.
Government treasuries from the US to Germany and the UK have had a pretty grim time as well. The long rush to safety in State debt seems to have suddenly hit a brick wall as investors now worry about inflation and over issuance. The US Federal Reserve and European Central Bank seem to be printing cash on a monumental scale in order to help loosen the credit markets. When you add the Bank of England, all three are now propping up the ailing banks with public funds. So who is going to buy this rising tide of paper?
This brings us to the ‘safe haven’ of Cash. Another difficult decision, where to keep it? Suddenly those pillars of the western world, the major banks, do not look quite so sturdy and as the HBOS saga showed. Even other banks are very willing to believe in the instability of their peers. That is clear from their unwillingness to lend to each other. The value of cash can now be seen from the fact that the banks are willing to pay considerably over base rates to acquire it. There is one primary reason, above all others, that causes a person to pay over the odds for an asset. Scarcity.
Much of the world’s worth is tied up in non-cash assets of one form or another. Bonds, Property, Equities and so on. Much of it is controlled by Insurance Companies, Pension Funds, Hedge Funds etc. And most of that is currently falling in value. And a lot of it is also quite difficult to, quickly, turn into cash at rates remotely resembling the ‘book value’.
The recent decimation of capital worth across the planet has been quite amazing. Wall Street stalwart, Bear Stearns, deftly turned $15bn of savings into virtually zero in two weeks. Peloton and Carlyle (just a few of many many Hedge Funds) wiped out £13 billion of other peoples money. An astounding sum of money. And these are the ones we have heard about.
Unfortunately the growth of the world economies is often tied up in how well the wealthy are doing. A sad indictment of the capitalist system. And at the moment, unless they are sitting on a commodity asset, they are doing rather badly.
So banks are short of the one thing that they always need to meet various regulatory hurdles, cash.
The problem is that the various central banks (apart from the Bank of England) have now done virtually everything they can to free up the wheels. There is little left in the armoury. It would almost seem that the never ending negative trade balances of the west have finally drained the well.
So where do you put your money? I have heard that the Private Swiss banks have started to come back into popularity. Companies and individuals do not necessarily want secrecy but they do want to put their money in an institution that is not tainted by the Mortgage or Derivatives markets.
Just to confirm, that’s not from a tax avoidance point of view, but from a desire to have funds somewhere where it is not at risk from systematic financial failure. The UK Government had difficulty propping up Northern Rock. What if a bigger unit got into trouble? The insurance on assets only goes up to some £40-50k. Wealthier depositors are obviously deciding that they need greater security than 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.
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