Barclays Warns Of A Financial Storm As Federal Reserve's Credibility Crumbles

[Purveyor]

Source: Telegraph UK

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility," said Mr Bond.

The grim verdict on Ben Bernanke's Fed was underscored by the markets yesterday as the dollar fell against the euro following the bank's dovish policy statement on Wednesday.

Traders said the Fed seemed to be rowing back from rate rises. The effect was to propel oil to $138 a barrel, confirming its role as a sort of "anti-dollar" and as a market reproach to Washington's easy-money policies.

The Fed's stimulus is being transmitted to the 45-odd countries linked to the dollar around world. The result is surging commodity prices. Global inflation has jumped from 3.2pc to 5pc over the last year.

Mr Bond said the emerging world is now on the cusp of a serious crisis. "Inflation is out of control in Asia. Vietnam has already blown up. The policy response is to shoot the messenger, like the developed central banks in the late 1960s and 1970s," he said.

"They will have to slam on the brakes. There is going to be a deep global recession over the next three years as policy-makers try to get inflation back in the box."



Read more: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/27/cnbarclays127.xml

[msongs]

1. would be nice to see savings rates go up - bushco says hi gas prices are NOT hurting. yeah right nt

[Pale Blue Dot]

2. RBS (Royal Bank of Scotland) issues global stock and credit crash alert (from last week)

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

Such a slide on world bourses would amount to one of the worst bear markets over the last century.

"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.

"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cnrbs118.xml

Once again, the Europeans are WAY ahead of us on this. Be prepared. Take the cotton out of your ears. This is going to get VERY bad, VERY soon. Ignore the warnings at your own peril.

[Megahurtz]

3. Yikes, beware. n/t

[indepat]

4. Give credit where credit is due: Greenspam created the bubbles by supporting junior's insane tax

and fiscal policies with ludicrous monetary policies. :D

[defendandprotect]

12. "We'd have to call out the militia in order to restore the tax cuts on the wealthy" --- !!!!

Actually . . . Gov. Cuomo said that probably 15 years ago re the tax cuts that had

already been made ---

Look where we are now!!!

[CHIMO]

5. US markets tumble as oil price rises

Wall Street is teetering on the brink of an official bear market after a miserable day of trading completed the worst June for American stocks since the Great Depression of the 1930s.

A fresh clutch of warnings about the health of leading banks, together with a new record high of $142 for a barrel of oil, sent the Dow Jones Industrial Average down by 106 points to 11,346.

The blue-chip index has fallen by 450 points in two days and the slide means that it is 19.9% below its record high, set in October. The generally accepted definition of a bear market is a fall of 20% over a sustained period of time.

The week's financial bloodshed means that American shares are now in negative territory for the millennium. The Dow Jones index is below the mark of 11,497 at which is closed at the end of December in 1999.

http://www.guardian.co.uk/business/2008/jun/27/useconomy.creditcrunch

Guess that we can expect the unknown knowns.
http://www.guardian.co.uk/commentisfree/2008/jun/28/wildlife.conservation
Or maybe it is just the known knowns?

[unblock]

6. shrub's raid on the treasury has put the fed in an impossible box

barclay's single-minded droning on inflation ignores that we are in a stagflationary period, much like we were in the 70's, except that in the 70's we can blame first opec and only then our own government (nixon/ford -- despite the rap carter got, the problems started well before he got into office... remember ford's idiotic policy of fighting inflation with "whip inflation now" buttons?)

this time, our problems are readily traced back to shrub's borrow and embezzle strategy. who has no credibility? hah! it's our fiscal policy that has no credibility. to go from record surplus to record-shattering deficits WITHOUT ANY INVESTMENT IN INFRASTRUCTURE would be staggering in its stupidity if it weren't so obvious that the shrubbies don't give a rat's patootie about the consequences of their raid on the treasury. greenspan was complicit in this, but the overconcentration of wealth was shrub's plan and greenspan merely played his part.


the fed can't really rescue an irresponsible fiscal policy. they could apply volker's remedy (volker, celebrated by monetarists and conservatives everywhere for stamping out inflation and righting the economy for which reagan took credit was, of course, a carter appointee) at the cost of an extended and even nastier recession (as happened under reagan).

but the bottom line is that running an economy properly takes a responsible monetary policy AND a responsible fiscal policy. and it's not the monetary side that needs fixing.

tax the rich properly
give the consumer population (poor & middle class) a real break (not these measly $300 checks they love to tout like they're a panacea)
invest in our infrastructure, especially green and mass transit
curb military spending
get the f*ck out of iraq and let iraqi oil come back online
get tough on opec
balance the budget
stabilize the dollar
curb offshoring and importing
support our manufacturing base
ban privatizing -- the federal government should EMPLOY those who do work for the federal government. piratizing is just a modern form of the old patronage system, used to throw government dollars to donors.

[defendandprotect]

13. Funny how they don't mention Bush's bankrupting our Treasury . . .

just a small detail --- !!!!

[Doremus]

7. We're getting our retirement fund out of the market. Where to put it?

Right now we're thinking just plain old CDs, short-term. Roll them over until this all shakes out.

Then I worry about the banks.

Cash in the mattress?
Bury a tin can in the back yard?

This financial stuff has me flummoxed. All I know is it can't stay where it is. :(

[cstanleytech]

9. Actually, buying gold and silver seems the popular

thing to do.

[defendandprotect]

11. Me, too --- anyone here have any good ideas about any of this ??????

We have a small amount of funds with UBC !!!!

Or is it UBS???

[SpiralHawk]

8. "We accept full responsibility for this catastrophe." - Republicons on Truth Serum

[defendandprotect]

10. Barclay's . . . ? They're worried about "preventing a wage spiral" due to inflation ---

Meanwhile, what in the hell is the Fed doing running our economy --

that's something the Congress should be doing --- !!!

And the answer . . . "More Republican Recession" . . . "to get inflation back in the box" -- !!!


ONCE AGAIN, UNREGULATED CAPITALISM FALLS ON ITS FACE ---

IT'S A RIDICULOUS SYSTEM --- A PHONY 'KING OF THE HILL SYSTEM' . . .

redistributing our wealth and assets from the many to the few ---

[jaybeat]

14. No shit, Sherlock

WTF do they expect the Fed to do? Jack up interest rates so we have MORE defaults (business and consumer), MORE foreclosures, MORE fire sales (pennies on the dollar), MORE blighted neighborhoods, MORE wild speculation jacking up prices and fueling uncertainty, MORE unemployment (sure as hell keeps those wages down, though!)???

I guess if your one and only mantra is "preserve your wealth, those who have it" you can pretty much tell the rest of the world to fuck itself. I've got mine, I'm gonna keep it safe. Screw you.

Nice. Real nice.

Kinder, gentler capitalism, anyone?

[defendandprotect]

16. Right--!! Right--!!!

Funny how these articles can really raise your blood pressure --- !!!

Nice to share a stroke with someone else --- !!!


:)

[iaviate1]

15. This prompted me to move to bonds.

My 401k took a 9% hit so far this year... not sure anything is safe, but at least this new fund hasn't lost money this year. Thanks for the info!