Ralph Shell @ 1:15 PM, Tuesday April 27 2010
As we edge closer to the election date in Britain, the election charges multiply. Lord Mandelson accused Nick Klegg of " allocating jobs before the nation has cast a single vote." To appease the Labour Party charges Klegg clarified his position that he would work with the Labour Party but not with Gordon Brown. Labour party officials said a vote for the Lib Dem Klegg, would end up putting David Cameron and his boys on the front bench. A Scottish Tory candidate got suspended, after making offensive charges, describing gay people as 'not normal.' We can expect further charges and counter charges which may help voters to decide who not to vote for.
This morning the Telegraph.UK observed; "General Election 2010: A conspiracy of silence" they said:
"The theme for Thursday's final leaders' debate is the economy. If
the
campaign so far is anything to go by, it will offer meagre
pickings. The
budget deficit presents the greatest threat to our economic wellbeing
in 80
years, yet it has barely featured as a issue. At this perilous moment
in our
national fortunes, the politicians appear to have taken a collective
vow of
omerta
on the one subject that should obsess them. It means the voters are
being
asked to make a fundamental choice about the direction of this country
blindfolded."
Like the Americans, the Brits have embraced the philosophy that spending, especially when it involves a transfer of money to your friends and supporters, should be viewed as 'investments.' Last month the Public Sector Net Borrowing was £23.5B, the amount that had to be borrowed to pay for their 'investments,' over and above the funds originated from tax collections.
As long as there is an ample supply of liquidity provided by the central bankers at exceptionally low rates, there is money to continue these 'investments.' This week, for example, the US Treasury is auctioning a record $139B in 2, 5 and 7 year paper. How much longer can this continue?
For the Greeks, who had borrowed excessively for years, the rate climbed to usurious levels. Today S and P downgraded Greek bonds to a junk rating. It looks like default in Greece, with the lenders forced rework loans, is now the alternative to a bail out, and the alternative to currency devaluation in Euroland. This leads to some further questions. Who are the unlucky lenders, and will they have to be bailed out?
Next, will suspicion of all sovereign debt increase. Already Portuguese and Spanish rates are creeping higher. British 10 year bonds currently yield 3.96%. Is that enough?
Most of the recent currency concerns has been directed at the Greek problems and the impact on the euro. The pound has remained in a 1.52 to 1.55 range testing, no doubt, the patience of those with big spec short positions. Recently the pound may have turned in a better than expected performance because it is not the euro. We prefer the short side versus the USD, but are undecided weather to see if the market gives us a swing rally back to the 1.5340 level, or to short on a breakout to the down side.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.