Financial Highlights / Lowlights of 2007

Last year was a market full of ‘surprises’ and here is my list:

1. Affecting my own livlihood the most was the credit crunch. It spread from the US to the Eurozone Australia and then on to Asia.

2. The sub-prime fiasco, and I don’t use the word ‘fiasco’ sparingly – on that note I would ask banks to stop inventing things like SIV’s because it was the inability to value them correctly and the subsequent failures of same which kick started the whole thing. The sub-prime mess hit everything from wall street to London, here, there, everywhere and it even raised rates for all new mortgages in Ireland because the Euribor sat at 6 year high and refuses to drop as far as the ECB had hoped with the latest cash injection, it went from almost 5% to (todays) 3 month money price of 4.64%…. are we getting value for our billions? Does it even matter any more? The fact of the matter is that the likes of Citibank should have its whole board resign and they should have to pay everybody back whatever they lost because central banks have basically come out and rescued private firms. Government intervention is crucial to keep the world stable but idiocy in banking is unforgivable.

3. This ties into number two: Central Banks around the world pouring money into the market in order to stop the squeeze turning into a freeze. So many billions that if you turned it all into dollar bills and placed them end to end you could go around the moon and back, 80 times! I was almost tempted to use explicative’s when I worked out that one.

4. A property market downturn: Again this was a case of America sneezing and Europe catching a cold. Prices here, in the U.K. and virtually everywhere else have taken a tumble, there will be more and more people unable with rate increases to pay their mortgage so this may increase the downturn a little more – if you are one of these people get yourself a good solicitor, just not the one who is in the papers a lot lately – because people often sell rather than get repossessed and that is why the figure of 57 repossessions in Ireland last year is not 100% reflective of the actual mortgage and property market.

5. Linked in a way to point two is that while all of this happened the public didn’t complain about the government bailouts, the lack of transparency in some banking procedures which helped bring this about, the golden handshakes to CEO’s behind them and the possible creation of a recession. I guess people are just too fed up to care or something (pun not intended on use of ‘fed’)

A few predictions for 2008:

I believe commodities (including precious metals, wheat & corn) will all see double digit increases in value. Gold is still the best safe haven. Connected to this I think the Yen will strengthen. Investments in distressed debt will be a key area but you have to have the money to play this game. For instance (a simple example using property) – earlier we said that many people would sell a property rather than foreclose, well for these people – many whom have equity- they may be willing to sell well below market value. Some of them will have enough equity that even if they take less they will realise a gain in terms of what they paid for the property.

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