Sorry for the temporary disruption to service; I have a serious computer virus which the anti-virus chaps have yet to find. This has held back my research -- if I am looking through a keyhole at the world, I can hardly synchronise the compass!
The essential issues today are still the bourses weakening the balance sheets of the banks. We are still on the very precipice of a collapse of the banking system which is why LIBOR remains so high despite unprecedented fiscal stimulation and political pressure (stronger pressure than ever, given that many banks are not part-nationalised).
The western economy used to revolve around the automotive industry - from the early post WW2 period to the early 1990s. After that, financial services and domestic real estate started to edge up and become more important. It is the bubble in 'house prices' and the leveraged derivatives in the financial services market that have brought us to this particular position. Now we have serious warnings for GM and Ford, both of whom are burning cash at such a rate that they will be out of business by Christmas.
It is not just the GMs and Fords, of course. More people are indirectly involved in the automotive industry than realise it. Consider three main pillars - Cars, Homes and Financial Services. Two of those pillars have collapsed and the third has been diagnosed as being in imminent danger of collapse.
This is not a time to trust the banks. LIBOR is encouragingly lower but it has been manipulated there. While none of us want to see a run on the banks, on the quiet, those of us with funds in banks might take steps to protect our cash. At this time inflation is falling but it will surely rise rapidly at some time in the future. But for the time being the risk/reward ratio is clearly in favour of cash under the bed.
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