Shares of Ford were up 7 percent at $8.58 before the bell after senior company executives said the automaker was on track to post its first monthly sales increase in two years.

In banking news, Barclays PLC reported an 8 percent rise in half-year profit, while HSBC Holdings PLC said its first-half profit halved from a year ago, but the results were better than the analyst consensus forecast.

“The greatest difficulty has been in financials, so the gains in HSBC and Barclays (are) adding to optimism and (suggest) that the worst may be over,” said Andre Bakhos, president of Princeton Financial Group, in New Brunswick, New Jersey.

“It’s comforting to see that we are in a global rebound in earnings.”

The Select Sector SPDR Financial ETF was up 2.2 percent before the bell.

A rise in oil prices was also poised to underpin the broader market, with U.S. front-month crude up 2.4 percent, or $1.65, to $71.10 a barrel.

S&P 500 futures rose 10 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures climbed 74 points, and Nasdaq 100 futures were 17.00 points higher.

The rise in U.S. stock index futures suggested that indexes will open up about 1 percent or more. The benchmark S&P 500 <.SPX> could begin trading at a 9-month high, very close to the psychologically important 1,000 level, after registering its best five-month winning streak since 1938 on Friday.

In Europe stocks were up more than 1 percent.

3M Co shares rose 2.4 percent to $72.22 before the bell after Goldman Sachs upgraded the Dow component to “buy” from “neutral.”

Ford, due to report its July sales later in the day, is among the primary beneficiaries of the federal government’s “Cash for Clunkers” incentive program that took effect on July 24.

The Senate on Monday is due to vote on extending the program to stimulate auto sales after the U.S. House approved $2 billion for it on top of an initial $1 billion in June.

The economic calendar includes the Institute for Supply Management’s manufacturing index due at 10 a.m. (1400 GMT). A Reuters poll of economists forecast a July reading of 46.2 from 44.8 in June.

NEW YORK, Aug 3 (Reuters)

While no names will be mentioned I will soon document receipt of a $10 Federal Reserve Note (while it still holds value).

You know I write about the Fed a lot. They are at the epicenter of the American and global economic and monetary crisis. These same elitist powers now want to take their act world wide. The Fed’s 100-year reign has all but ruined this country. Only a second American Revolution that totally dismantles this monstrosity and strips away the power of those behind its curtain will allow us to once again function according to our founding roots.

In late 2007 I proclaimed 2008 would be “the year of the bailout”. What a dummy … thinking just one year would suffice. Neither did I suspect bailout money would find its way overseas. What do you expect from a mere dentist?

The Fed is busy handing over trillions of dollars to well-connected US based cronies. The sum of present promises is close to $13 trillion and counting. These are monstrous commitments on yours and your children’s behalf. Please reply at the bottom of this piece if any of this money has found its way to your doorstep.

Fed digital-entry funny money has also been sent to France’s Societe Generale ($11.9 billion), Germany’s Deutsche Bank ($11.8 billion), Britain’s Barclays PLC ($8.5 billion) and Switzerland’s UBS ($5 billion). Yep, these foreign elite banks were provided these funds through the perpetual AIG bailout. The overall plan includes sending hundreds of billions of dollars in “currency swaps” to foreign banks. The blood boils.

You can also rest assured that we are at the mercy of many foreigners at this point. If China, Japan or Middle Easterners dump the Treasuries they hold or refuse to buy more, the Treasury market and the dollar will tank. Nothing like compromising foreign policy.

Why do you think the Fed sends this unfathomable amount of money to foreign entities?

1. They are charitable.
2. The global system is so fragile that no domino can fall.
3. Blood is thicker than water. Elitist connections rule. Period.

Could it be that the Fed bails out foreign entities because the Fed itself is largely a foreign entity? Home and abroad, the Fed takes care of its own first and foremost. You’d better protect yourself.

Source: Why is the Fed Bailing Out Foreigners?

European shares hit a one-week trough on Thursday, led lower by banks, as poor corporate results and fresh signs of deteriorating global economic outlook overshadowed a compromise deal on a massive U.S. stimulus plan.

By 0949 GMT, the FTSEurofirst 300 index of top European shares was down 1.5 percent to 791.78 points after falling as low as 787.14. The index is down 4.8 percent this year after plunging 45 percent in 2008.

Banks were among the top fallers on the index, with Commerzbank falling 5.4 percent, Credit Agricole down 3.5 percent and Societe Generale declining 3.4 percent.

Energy shares were also under pressure as crude prices eased to trade below $36 a barrel — down 75 percent from a record high near $150 just seven months ago. BP , Royal Dutch Shell , Repsol and Tullow Oil shed between 0.3 and 1.3 percent.

Governments are using “historically strong medicines to try to revive a patient that is looking very weak at the moment and so far almost everything that has been used has failed to work,” said Henk Potts, strategist at Barclays Stockbrokers.

Investors hoped the measures would support in the long term, but there was a lot of nervousness before they saw the results of the U.S. government’s efforts on the economy, he added.

The pessimism over a compromise deal on a $789 billion U.S. package, which helped Wall Street shares to gain overnight, evaporated after investors scrutinised a raft of disappointing corporate results and macroeconomic data.

Figures showed Japanese wholesale prices dropped in the year to January, the first drop in five years, bringing the world’s second-largest economy closer to its second bout of deflation in a decade as the economy slipped deeper into recession.

Earnings results also hurt sentiment.

Swiss engineering group ABB posted an 88 percent fall in fourth-quarter net profit, oil major Total reported an 8 percent drop in profits due to lower oil prices and output, while banking group KBC booked a $3.4 billion loss due to writedowns.

RIO TINTO STAKE

“Asides from the stimulus package, the big news has been the large stake in Rio Tinto (RIO) being sold to Chinalco,” said Andrew Turnbull, senior sales manager at ODL Securities.

“The deal is said to be the largest overseas deal by the Chinese and really does show how desperate for cash Rio Tinto has become,” he said.

Rio Tinto will sell $12.3 billion in asset stakes to Chinalco and raise a further $7.2 billion by issuing China’s top aluminium maker convertible notes to cut debt, the global miner said. Rio shares were up 1.2 percent.

The negative market sentiment spread to other sectors such as mining, electricity, telecommunications and retail.

Miners, struggling due to falling prices and slowing demand of metals, fell again. BHP Billiton , Anglo American (AAL), Xstrata (AXTA) and Antofagasta (ANTO) fell between 0.8 percent and 3.3 percent.

Among electricity companies, Enel dropped 2 percent and Renewable Energy slipped 1.4 percent.

France’s EDF fell 7 percent after it posted a dip in 2008 core earnings, hit by a larger-than-expected 1.2 billion euro ($1.55 billion) charge related to French regulated tariffs.

Britain’s BT Group dropped more than 5 percent after its core earnings slumped 9 percent in the third quarter and pre-tax profits slumped 81 percent.

Among gainers, French carmaker Renault rose 5.9 percent after it dropped its once sacrosanct 2009 profit targets and said it would focus on cutting inventories this year.

Across Europe, the FTSE 100 index, Germany’s DAX and France’s CAC 40 were down 1.1-1.9 percent.

LONDON, Feb 12 (Reuters)

Oil prices climbed towards $41 a barrel on Tuesday after OPEC signaled it might deepen its record output cuts to help boost prices and drain bloated stockpiles.

OPEC’s president told Reuters the group could take more action when it meets on March 15. Later, an OPEC source said the group may discuss a 1 million barrel-per-day cut in addition to the 4.2 million in reductions agreed since September.

U.S. light crude for March delivery rose 73 cents to $40.81 by 1730 GMT, having fallen to $39.83 on Monday, the first time below $40 a barrel in three weeks. London Brent rose 53 cents to $44.35.

“Prices do seem to have bottomed for now,” said Kevin Norrish of Barclays Capital. “OPEC has probably taken more than enough off the market and there’s a risk of over-tightening, in which case prices would go back up fairly swiftly.”

Slowing economic growth in the United States, China, Japan and other major consumers has dampened fuel use, swelled stocks and knocked more than $100 a barrel off the price of crude since its July 2008 peak near $150.

But despite the softening world energy demand, oil has held stubbornly above the $40 mark in recent weeks, buoyed partly by the aggressive OPEC cuts.

A Reuters survey showed the group, which pumps a third of the world’s oil, had carried out about 67 percent of its record curb in January.

Adding support to prices Tuesday were oil worker labor disputes in the United States, Europe and Nigeria — though none had hurt supplies yet.

Negotiators were hashing out a contract for U.S. refinery and pipeline workers and the union has said it could strike if talks break down — a move that would shut some 10 percent of the nation’s fuel production capacity within days.

In Europe, hundreds of contract workers at British energy facilities were protesting the use of foreign workers, though operations at refineries, power plants and pipelines remained unaffected.

Nigeria’s senior oil workers’ union, meanwhile, threatened to begin an indefinite strike from Monday unless the government improved security in the Niger Delta, its restive oil heartland.

Nigeria pumped about 1.75 million barrels per day (bpd) in January, versus its OPEC supply target of 1.67 million bpd, according to the Reuters survey.

U.S. crude inventory data were likely to show stocks rose for the sixth time in a row as refinery utilisation remained curbed by seasonal maintenance and imports rose, according to a Reuters poll of analysts.

Analysts issued their forecasts ahead of weekly inventory data to be released on Wednesday by the U.S. Energy Information Administration. Industry group American Petroleum Institute will release its data on Tuesday.

LONDON, Feb 3 (Reuters)

The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves against losses after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.

– Meanwhile, Reuters reports that U.S. banks will need more $700 billion in government cash injections to stay afloat because “banks cannot predict how many of their loans will sour because they do not know how much the economy will shrink, and forecasts of their future losses would only spook investors.”

– The numbers are certainly worrying:

By the numbers, the outlook for banks is troubling. U.S. commercial banks had about $1 trillion of capital as of the end of the second quarter.

That may sound like a lot, but Alpert estimates that banks globally could have a total of $1.25 trillion to $1.5 trillion of writedowns and losses from mortgages, of which perhaps $600 billion have already been recorded.

– Earnings season is upon us. Investors are reacting to the prospect of corporate losses. This from MarketWatch:

U.S. stock futures pointed to a second straight drop on Wednesday on concerns for earnings in a rocky economy, though Apple looked set to buck the trend after the consumer electronics giant was able to sell far more iPhones than expected.

S&P 500 futures fell 20.1 points to 939.20 and Dow industrial futures tumbled 166 points. Futures on the tech-concentrated Nasdaq 100 fell a more modest 15.5 points to 1,277.00.

– Global stock indexes also fell. This from Bloomberg:

The MSCI World Index lost 2.9 percent to 944.07 at 12:02 p.m. in London. The index has lost 40 percent this year and oil has tumbled more than 50 percent from its peak in July as concern deepened government bailouts to save the global banking system won’t avert a recession.

– In the currency markets, the British pound hit a five-year low against the dollar. The euro plumbed a 20-month low against the buck.

– Crude oil prices fell below $70 a barrel on growing fears of a global economic slowdown. OPEC’s scheduled meeting on Friday to discuss output cuts has so far failed to stem oil’s slide.

– A lot of investors are calling a bottom — at least a tentative bottom — in stocks.

– Addison Wiggan and Ian Mathias in The 5 Min. Forecast note that Jeremy Grantham, self-proclaimed “perma-bear” is turning bullish.

Grantham says the time has come for “hesitant and careful buying” of equities. Grantham, who also correctly called a global bubble among all asset classes last year, told his $120 billion worth of clients that this is the quarter to start buying.

“On Oct. 10, we can say that, with the S&P at 900, stocks are cheap in the U.S. and cheaper still overseas. We will, therefore, be steady buyers at these prices. Not necessarily rapid buyers — in fact, probably not — but steady buyers…

“History warns, though, that new lows are more likely than not.

“Fixed income has wide areas of very attractive, aberrant pricing. The dollar and the yen look OK for now, but the pound does not. Don’t worry at all about inflation. We can all save up our worries there for a couple of years from now and then really worry!

“Commodities may have big rallies, but the fundamentals of the next 18 months should wear them down to new two-year lows. As for us in asset allocation, we have made our choice: hesitant and careful buying at these prices and lower.”

As you are now more than aware, the bullion banks (not-for-profit sellers) hit the markets hard about 20 minutes after the Comex open…leaving all of us (including this writer) fantasizing on what might be if/when the dealers decide to stop selling and start covering their mega-short position. This is the fourth or fifth vertical price chart we’ve seen in both metals in the last 10 days of trading…all of them squashed shortly after the NY open.

The gold price was contained all through regular trading on the Comex, but surged higher once again in after hours trading. Silver didn’t fare as well, and its opening spike high was it for the day.

I must admit that I was surprised to see Thursday’s action hard on the heels of options expiry and before first day notice for July delivery…but the economic and financial news is now beyond horrific. However, if the HUI activity yesterday was any indication, then something is definitely up as the Dow got hammered…and precious metals stock buyers were out in force as the equity markets plunged…which is very encouraging.

Open interest numbers for Wednesday are as follows…gold o.i. fell another very respectable 4,900 contracts…but silver o.i. went the other way…up 1,717 contracts. There’s lot of switching and ’stuff’ going on around options expiry/first day notice, so I wouldn’t read a lot into this.

My first story today is more talk about intervention in the commodity markets. However this time, the London Metal Exchange (LME) is warning that intervention would be hugely counterproductive. The article is entitled “Curbing Speculation is Foolish, warns LME”. At least someone in this world has got their head screwed on straight. The link is here.

The second article is another Armageddon story…this one from Barclays Capital. It’s another Ambrose Evans-Pritchard piece from The Telegraph in London. The story is entitled “Barclays warns of a financial storm as Federal Reserve’s credibility crumbles”. The link is here.

Inflation is really picking up…Whether it’s steel or oil… we see it everyplace. It’s exploding….The Fed has to be very careful not to signal that inflation is a secondary concern and something that can be dealt with later…” – Warren Buffett, 25 June 2008

I see in a Bloomberg story that analysts are backtracking on banking stocks after saying that “the worst is over”. And the chief of OPEC said that oil’s rise is mainly because of the dollar’s devaluation. Libya threatened to cut oil production in response to a new U.S. law. Seat belt fastened…and crash helmet at the ready…would be a good way to start the day. Hank Paulson should be a busy man. I must admit that what I see out there scares the hell out of me. Good luck to us all.

See you on Saturday morning.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

Source: And Then There’s This…Friday, June 27th, 2008

Many look like they’ll have to find more capital to shore up their balance sheets, and there was much speculation in the weekend papers about investment banks ganging up behind the scenes to prop the sector up.

With housing sales in freefall, builders aren’t building anymore. It now looks as though just 100,000 homes will be built this year compared to a Government target of 240,000. That would be the lowest number built since 1945.

David Sutherland, chairman of housebuilder Tulloch, tells The Telegraph: “The UK housing target does not have a cat in hell’s chance of being met this year or next. Somebody at central government needs to do something.”

Two questions immediately arise in response to this plea. “What can the Government do?” and “Why should anything be done?”

Housebuilders are calling for government aid now that the housing market has gone into self-destruct mode. The Home Builders Federation is calling for stamp duty to be suspended and interest rates to be cut.

Sales are down 60% on this time last year, says Roger Humber of the House Builders Association. “No business or industry can survive that.”

The housebuilders are indeed facing terrible times ahead. They’ve had their boom – a boom never seen before, the likes of which they could never have dreamed of. Now they’re having the bust that was always certain to follow that boom. Just as the boom was better than they could have hoped, so the bust will be worse than they’d ever imagined.

This is why housebuilders usually trade on low price to earnings ratios, by the way. It’s because they are so brutally cyclical. Once the market turns, it turns badly, and the ‘e’ part of the p/e ratio drops off a cliff.

When activity drops off, the builders find they are left with assets plunging in value (their land banks) and they have to rapidly lay off workers to slash costs as sales dry up.

So – no surprise that they now want someone to save them.

But this is capitalism, remember? This is the way it works. Throughout the boom, no one in the property industry was particularly keen to have the state intervening in the market any more than it already does. Home Information Packs (HIPs) for example, which started out as a broadly sensible idea, were ripped apart by the property industry until they were introduced in their current, worse than useless, state.

More to the point, there’s nothing the Government can do. Stamp duty cuts? House prices are falling by about 2% a month at the moment. That’s your stamp duty right there. Interest rate cuts? In case the builders hadn’t noticed, rates have already fallen by three quarters of a point, and it hasn’t made a bit of difference.

That’s because banks still aren’t keen to lend. There’s been a curious reaction to this in the press recently. One leading property writer seems to be blaming Halifax among others for the seizure in the housing market, complaining that they are causing the house price crash by refusing to lend to creditworthy borrowers. Meanwhile, in The Telegraph, a reader’s letter cites amazement at banks greedily ignoring the BoE’s interest rate cuts.

It’s important to understand that the banks aren’t doing this out of spite or greed. This is not a matter of simply persuading them to start dishing out the readies again. The banks – for anyone who didn’t notice Northern Rock or Bradford & Bingley’s travails – are undergoing a bit of a crisis themselves. Halifax parent HBoS is right now crossing its fingers for its £4bn rights issue, while Royal Bank of Scotland has just raised £12bn.

To put it bluntly, the banks are skint. They gave too much money to people who couldn’t pay it back, and now they’re paying for it. They need all the money they can get. They don’t care how good a credit risk you are – they simply aren’t in a position to be as profligate as they were before.

Sure, it’s their own fault they got into this mess. But if you want to blame the banks for their reluctance to lend now, you also have to acknowledge that they were wrong to have been so free and easy with the credit in the first place. And that’s something I suspect most property pundits would be reluctant to admit.

Anyway – back to the point in hand. There’s nothing the Government can do – short of actually giving the housebuilders money (don’t rule it out) – to save the construction companies.

The good news is that with the free and easy access to credit that created the boom in the first place now gone, house prices will settle back to a level that genuinely reflects supply and demand. And with builders unable to build more houses (bye-bye to Gordon Brown’s eco-towns, thank goodness), and foreign workers heading off back home in their droves, we’ll soon see just how much of a housing shortage Britain really has.

I think we’ll find it’s less of a problem than the bulls have been making out.

Turning to the wider markets…

The FTSE 100 recovered on Friday to rise 12 points to 5,802. HBoS was the biggest riser along with other banks as investors closed out short positions.

Meanwhile, in Europe, the German Xetra Dax climbed 50 to 6,765, while in Paris the French CAC 40 rose 10 points to close at 4,682.

In the US on Friday, stocks made strong gains as inflation data was in line with expectations and the dollar continued to rally. The Dow Jones rose 165 points to 12,307. The S&P 500 climbed 20 points to 1,360. And the Nasdaq rose 50 points to end at 2,454.

In the forex markets today, sterling was trading at 1.953 against the dollar and 1.2677 against the euro. The dollar stood at 0.6493 against the euro and 108.31 against the Japanese yen.

In Japan, stocks were higher as the weaker yen boosted earnings at car and electronics manufacturers. The Nikkei 225 climbed 380 points to close at 14,354.

Brent spot was trading this morning at $133.70, while in New York crude was trading at around $134.10. Spot gold was at $867 an ounce. Silver was trading at $16.49, while platinum was at $2,019.

This morning, Barclays’ share price has risen after it said that it is actively considering selling shares to prop up its balance sheet. Profit for May was “well ahead” of last year’s figure. Reports at the weekend suggest that any money raised would come both from sales to sovereign wealth funds and to existing investors.

Source: The Good News About the Housing Crash

Nicholas Nassim Taleb coined the term Black Swan to explain how massive unforeseen events have the greatest impact on markets. But only the most naïve and optimistic of investors was not expecting further fallout from the abominable banking sector.

Bradford & Bingley (B&B), like Northern Rock, RBS, Alliance & Leicester, Barclays and HBOS before it, is in the spotlight and in a lot of trouble.

The company has launched a £258m rights issue at an offer price of 55p a share. They are set to issue a profit warning. Steven Crawshaw has stepped down as CEO. And they have agreed to sell 23% of their shares to Texas Pacific Group (TPG) Capital, a US private equity firm for £179 million.

This “perfect storm” hit the firm so hard that the FSA were forced to come in and suspend trading in the shares.

The downturn in the buy-to-let housing market means the UK’s eighth largest bank, from £3 billion in 2006, now is worth a mere £404m — less than Dignity funeral care. Which is shocking, viewed in isolation.

But, I’m pretty blasé about all of these rights issues and share plunges. Anything happening in the banking sector is a write-off (pun intended). Regular readers know that I’ve no interest in bottom-fishing for ‘bargain’ banks.

Despite my antipathy, I have been constantly advised to pile into banking shares. In the past 3 months I’ve been told:

To buy Barclays at 510p; the shares are now 363p;
To buy RBS at 330p; now 222p;
And to buy HBOS at 497p; now 368p.

All three tips were made, among other things, on the basis of big dividend yields, which seem to cover a multitude of sins.

Except they don’t. All three tips have incurred a greater capital loss than their total annual dividend payout would compensate for. And, none of these three firms is paying a dividend in cash. They’re paying them in shares instead.

This only serves to hurt the per share profitability, which lowers the already low share price… not what the dividend hunters signed up for.

The world’s worst stock tipper

I will no doubt receive another tip for Bradford & Bingley. Why do the tippers persevere with banks?

Because the culprit ultimately responsible for all of these tips is still at large, pushing bank stocks like never before.

Let me now reveal to you who that culprit is. This is today’s the print-out from my Bloomberg terminal, objectively ranking stocks by their value credentials:

1. Bradford & Bingley, Score: 99:89
2. Alliance & Leicester, Score: 83.96
3. HBOS, Score: 80:86
4. Barclays, Score: 78.68
5. RBS, Score: 76.42

Blame the machines.

Across the entire UK stock market, banks are the five best value investments around today. And it’s not just Bloomberg… running any value ‘stock screen’ from Reuters, to Digital Look, to Zacks, to ADVFN produces the same result. This is what every investor and fund manager has been seeing on their screens since late-October.

In objective terms, these are the shares to buy. But anyone who’s been following this advice over the last 12 months has lost, and lost big.

There are two ways to look at investments, bottom-up and top-down.

Bottom-up investing uses stock-screens — systems that zero-in on company fundamentals. Think of it as tunnel-vision investing. In a bull-run, it is a great way to buy stocks. I used to build stock screens for a critically-acclaimed investment service, so I can personally testify to how effective they can be.

Top-down investing is quite different. This method is far more big picture. The first question is not ‘What company should I look at?’ It’s ‘What assets should I look at?’

Top-down investors are not only looking at numbers, but at sentiment and market opportunities outside of a machine’s scope.

While neither method is perfect, in a market downturn it is essential to think big.

Bottom-up investing can lag reality — in the 2000 bear market, stock screeners were picking out the companies that had fallen hard and were more value trap than value opportunity. The same thing is happening here. A system is not a substitute for common sense.

If the market falls by 20%, you have to sit up, take notice and, depending on the portfolio, take action.

The fallout was an opportunity to re-evaluate and find safe-havens for your money. Those who did this have profited in the last six months. Those who had well diversified portfolios in a variety of sectors have probably broken even.

Those who held the ‘good value’ banks, house-builders and retail stocks must now take drastic action to pull things back.

Theo Casey

Source: Bradford And Bingley’s White Swan Event

UK consumer confidence has now plunged to its lowest point since Margaret Thatcher was ousted from office, according to GfK this morning. And the CBI Distributive trades survey reports that retailing is suffering a severe squeeze.

Bank shares are plumbing new depths, with the Royal Bank of Scotland yesterday falling to its lowest level in eight years and Bradford & Bingley hitting an all-time nadir.

But at least some people in Britain still have big smiles on their faces. Tucked away in the Bank Holiday news last weekend was yet another City bonus bombshell… with the startling story that a staggering £13.2bn has already been forked out in 2008 in Square Mile bonuses.

Despite the real world pain, this year’s total is a mere 1% down on the same stage twelve months ago, when bonuses of some £13.3bn were paid out.

Indeed, bankers and financial traders were handed £12.6bn bonuses in the first three months of this year alone, according to figures from the Office for National Statistics, smashing last year’s record for the same period by more than £500m. To put this into context, for 2006’s first quarter, £9.7bn was shelled out.

Among those celebrating most will be hedge fund managers at Goldman Sachs, where dozens of traders trousered £5m each, with one lucky chap collecting over £10m, said the Telegraph.

But obviously, the big difference between this time and previous years is that stacks of flak have been flying around the financial markets recently, with many of the major players being badly burned by their dodgy debt deals.

Several of our biggest banks have had to scurry round, cap in hand, to the Bank of England to swap some of their so-called securities for top-notch Government bonds simply to keep their balance sheets in order.

And, though you won’t need much reminding, there was the hardly-minor matter of Northern Wreck, which overextended itself so far that the only people who could be forced to bail it out were poor old British taxpayers. Not that they had any say in their cash being used.

But still the bankers have had their bunce, though several commentators reckon that the City’s bonus culture is a key credit-crunch culprit. CBI director general Richard Lambert believes the system “encourages some employees to take spectacular short-term risks, confident that if things work out well they will reap huge rewards, and that if they don’t they won’t be around to pay the price”, while George Soros says “there’s a real problem with incentives for the banking and the hedge fund community.”

To be fair, Bank of England governor Mervyn King has been on the case. He recently told a Treasury select committee that “banks have come to realise they’re paying the price for having designed compensation packages which provide incentives that are not, in the long run, in the interests of the banks.”

But what about their customers? It seems they don’t have a lot of clout right now, either. It’s pretty galling watching your bank paying its hotshots multi-million pound bonuses while at the same time telling you that the cost of your fixed-rate home loan has gone up again, or that your house is being repossessed as you can’t afford the repayments, because the money markets have now got the jitters due to all those sub-prime losses.

Like when Barclays hands Bob Diamond a £35m payout, despite his bank writing off £2.2bn in bad debts. Maybe the bankers will attempt to justify the huge payouts by reminding us that they enjoyed a fairly good start to 2007 before the credit crunch began to bite. Though ironically, the overall bonus totals are so high that they almost completely cover the £15bn deficits recently suffered by British banks.

Trade unionists are already up in arms. GMB general secretary Paul Kenny has called for the government to stand up against the financial services industry: “There can no longer be any doubt that the multimillionaire elite who run the City and the financial sector are out of control and divorced from economic realities.” The GMB wants an urgent enquiry to see if that taxpayer-funded bank bailout is being used to fund bonuses.

That’s a fairly predicable reaction, and unlikely to carry too much weight. But as consumers and home-loan borrowers come ever more under the cosh from the credit crunch, those bonuses are likely to spark increasing anger.

Yet while much of the fury is fully understandable, the whole bonus issue may well prove to be self-correcting, in the way that markets normally resolve excesses if they’re allowed to. If central banks can manage to stay away from the money-printing press, whose overuse pumped up the credit bubble in the first place, there’ll be much less money made by the traders in 2008.

So the chances are that bankers’ belt-tightening will begin in earnest later this year. The next bonus round will start in December and run into 2009. One leading think-tank, the Centre for Economics and Business Research, recently forecast that the next set of City bonuses would be down by as much as 40%. And by that stage, the way the economy is going now, we’ll probably find we all have plenty of other things to get stirred up about.

Source: Credit Crunch? Not when it comes to City Bonuses

But now the idea that the good times are over is going mainstream: not only is the “nice” decade – Non Inflationary Consistently Expansionary – ending, but the “nasty” one could well be starting, says analyst Tim Bond of Barclays Capital.

But what does that really mean? And how will Britain be dragged down into another recession?

Over to the strategy team at Legal and General. They’ve charted a ‘heat map’ of factors that could push us over the cliff edge. And it’s enough to get anyone steamed up…

…Legal and General’s SatNav is now on red alert. According the them there’s now a 95% chance that Britain is heading for recession!

While you’ll find plenty of commentators who will happily chat in gloomy terms about all sorts of possible problems, and then make a comparison with some point in history, Legal & General has taken the analysis a stage further.

Having totted up all the potential perils facing UK plc, the L&G team then rated each risk on a scale between ‘Good’ to ‘Danger’. Everything in the latter category, you won’t be surprised to hear, is coloured bright red on the heat map.

Why the likelihood of a recession is so high

So after examining sky-high personal debt levels, soaring oil prices, crimped bank lending and tension in the money markets, as well as a few other areas of possible pain, the strategists reckon that the odds of Britain suffering a recession are now about 95%. And what raises the stakes so high is the likelihood that everything will go wrong at exactly the same time. Which also makes it a racing certainty that the recession will prove to be just as bad as both the early 1990s and early 1980s.

How long will it last? The official description of recession by economists is “two quarters of negative growth” (only economists could actually talk about minus numbers as negative growth).

The Legal eagles have been pretty downbeat for some while, but until now have been telling us to expect perhaps two years of the economy going nowhere.

But recently the L&G ‘recession model’ has taken a real turn for the worse, and is now warning of a long decline in economic activity, by as much as 2% year-on-year. That may not sound huge, but if it happens, life could get very unpleasant and we’ll all feel the squeeze.

Cheap Asian imports are getting more expensive

Already there’s lots of talk about the dangers of Asian inflation and what this means for us here in the UK. Instead of picking up all those nice cheap Far East-made goods on our credit cards, we’ll soon find that the prices have gone up quite a lot (see this week’s Moneyweek for more on this).

But in future, the Legal analysts suggest that little luxuries will soon be off the menu anyway. If we do have a little leeway before hitting our credit limits, we could soon need it, plus any spare cash we can lay our hands on, just to pay the petrol bill to get to the supermarket.

Spending in the shops will suffer, profits in consumer businesses will slump and jobs will get cut. Meanwhile, the housing market will get much worse as mortgage problems mount. The Council of Mortgage Lenders now sees house prices dropping 7% this year, with transactions down by over a third on last year.

And banks will become less and less willing to lend money to all those people who’ll need it more and more. Don’t believe we can’t have a recession at this level of interest rates. If the banks close the loan shutters, we can.

Why the Bank of England is a lot gloomier than the Government

It seems the Bank of England is finally catching on, too. Today’s FT reports that the Threadneedle Street thinkers are now a lot more gloomy than official Government forecasts. Indeed, the Bank now believes that “a long period of weakness” is needed to bring inflation under the thumb, as I talk about below.

What’s more, the Government, i.e. taxpayers like you and me, won’t be able to do much about helping out, now that Gordon Brown has broken his Golden Rule by reeling in Northern Wreck.

UK public debts have now smashed through the government’s official ceiling of 40%, preliminary figures suggest, reaching 43.1% of gross domestic product (GDP) in March. And although Chancellor Alistair Darling has said that any impact on the public finances by nationalising Northern Rock would be “temporary and exceptional”, just remember Milton Friedman’s comment that “there’s nothing so permanent as a temporary government programme.”

Historically, governments have been able to use our cash to boost the economy. But Howard Archer, chief UK economist at Global Insight, said the government’s aim to keep borrowing down to £43 billion in the current financial year is “wishful thinking” should the economy slow sharply.

And because of inflation, the Bank of England won’t be able to help either. The hands of the rate setters on the Bank’s Monetary Policy Committee (MPC) are well and truly tied by the CPI (consumer price index) hitting 3% and looking like it’s going some way higher, rather than lower.

In short, there should be no more interest rate cuts on the MPC’s agenda for the moment. Not that they were doing much good anyway. What matters most to the majority of homeowners is the level of mortgage rates. These are priced off so-called swap rates, in turn based on LIBOR – the interbank rate at which lenders lend to each other. Libor rates have stayed stubbornly high, the best part of 1% above base rates, despite the MPC’s earlier antics.

This may all sound like a technicality, but it isn’t. What it’s saying is that there’s still a lot of nervousness left in the banking system. Mortgage variable rates won’t fall until the markets regain confidence in the Bank’s bank rate.

So the picture’s looking bleak on all fronts. Recession looms, consumer prices soar, public debt climbs. Not nice at all.

Source: Why There’s a 95% Chance of a Recession