The news that Iran is actually test firing long range missiles hit badly the already weak US Dollar which came off across the board this morning. This has resulting in flattening out yesterday’s Continue Reading »

General Motors, one of the world’s largest auto manufacturer, faces liquidity problems that could eventually lead the largest US automaker to bankruptcy, Continue Reading »

I have a loan to repay (yes, count me in!)… in euros. So, while I can afford to spend some time watching the direction of the ever-changing cross currency rates on a daily basis, the bad news is that Continue Reading »

Trading in derivatives market is booming as investors try to benefit from the high market volatility caused by the never ending crisis in the credit markets, and the heightened food and fuel prices that generally push inflation to unprecedented levels all around the globe. Continue Reading »

The crowding out effect is a term that it’s being used more and more on financial newspapers and other reports. But I do not want you to feel left out of the conversation every time someone brings it up - and it does happen quite often lately, no wonder why - so here’s a brief explanation.

Let’s take a random example, the English government. An increase in the English government’s expenditure may have to be financed by borrowing money. This would lead to an increase in interest rates, which would eventually result in higher borrowing costs for the private sector.

Higher borrowing costs for the private sector or else tighter bank lending terms would naturally lead to a reduction in demand. And if such a ‘hypothetical’ scenario was to take place, the government will have ‘crowded out’ the private sector due to its increase in spending.

Not to mention how bad that would be in terms of inflation…

Investment banks and other financial institutions have been bombarding the world with losses reports for the past several months. Having lost account of the amount of losses incurred since the rise of the subprime mortgage crisis.

I am not sure about you, but I was certainly dying to sum it all up and just stand and stare at the total figure. And there you go!

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Data: as of 29/04/2008

Source: Bloomberg

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Slowing GDP growth prospects and rising inflation have been the two main concerns for many countries in the last couple of months. In the US, the economy managed to avoid an outright contraction by a few basis points. The central bank has aided financial institutions, by means of providing and expanding liquidity.

Going forward, the future course of actions of monetary policy is more uncertain, as surging food and oil prices have come into the picture. The relatively high inflation is dictating direction now, while the word’s most powerful central banks are telegraphing the end of the interest-rate-cut-era and traders are already looking in the opposite direction.

The real danger of inflation is that fool and oil prices are rising so fast that inflation will replace costlier credit as the major threat to the global economy. Whether the Federal Reserve will look to move in the opposite direction and raise interest rates in order to avoid inflation risk is still hard to say, but given that Middle East and Asia are still driving the global economy and pushing food and oil prices higher, this scenario cannot be overruled.

Merrill Lynch & Co. forecasts global inflation will accelerate to 4.7% this year, the fastest pace since 1999, from 3.4% in 2007.

The number of US businesses bankruptcy filings has risen as much as 49% in April compared to a year earlier. According to statistical data that was compiled by Jupiter eSources LLC, the business bankruptcy filings soared to 5,713 during April. The total number of bankruptcy filings, including those filed by individuals amounted to a total of 93,096, the Oklahoma-based group said.

And just to spice up the news a bit…

• The economy has lost a total of 260,000 jobs since the beginning of 2008.

• Banks have foreclosed nearly 650,000 properties in the last quarter of 2007.

• Analysts estimate bankruptcy filings will reach a total of 1.1 million by the end of 2008.

There was, a week ago, a glimmer of hope in the world with regards to the food crisis. Not anymore. Prices of essential food items have gone drastically up with the past few days.

One thing is for sure that we have gone from an era of plenty to one of scarcity. Experts agree that food prices are not likely to return to the levels the world had grown accustomed to any time soon.

In Liberia last week, it was reported that people had stopped purchasing imported rice by the bag, and instead they bought it by the cup! This situation certainly brings up memories of the food riots that sunk Liberia’s into chaos in 1979.

In Kenya’s Rift Valley, “the bread basket of East Africa”, farmers are planting only a third of what they did last year. Now, if they could sell at higher prices, why wouldn’t they plant even more? Because they cannot afford fertilizer, which is also skyrocketing in price.We see the same in Mali, Laos and Ethiopia; a perfect prescription for disaster.

In Kathmandu, the government announced yesterday that it has decided to ban export of food items in a bid to tackle the soaring food prices. A senior official at the Ministry of Supplies said the decision to ban the exports was taken to protect his country of food crisis. “We are dependent on India for food items. India has stopped exporting to us now. On the other hand, we export wheat flour to Tibet, China and basmati rice to Bangladesh,” said Gyan Darshan Udhas.

And the thriller is set to be continued….

UBS AG Chief Executive Officer Marcel Rohner confirmed analysts’ fears today that UBS, the largest Swiss bank will put its investment banking business on a much tighter leash. UBS will ‘no longer aim to offer everything to everyone in investment banking” Rohner told investors at the annual shareholder meeting in Basel today.

UBS has about $3 trillion assets under management, making it not on Switzerlands’ biggest bank, but also the world’s largest wealth management company. But losses of almost $37.5 billion since July have long exceeded the $32 billion earned by the division in the past 10 years.

UBS shares have lost 55% of their value over the last 12 months. The bank eliminated 1,500 jobs at the end of 2007 and may well cut another 2,500 or 11% of the employee force in the investment banking division.