As Boris might say, crikey. Prudence has well and truly packed her bags and I suspect we won't be hearing any more crowing from the Dear Leader about having "put an end to boom and bust". The Tories have been saying for ages that the amount of unsustainable debt and borrowing created by Brown will come back to bite him. If this analysis is correct, they will sadly be proven right.
The immediate political effects are that oil (I guess would spike at $140) by the end of the year. I would expect there to be fuel strikes because of the high costs of petrol. I also expect the sentiment in the country to swing strongly against fuel tax because it will be seen as an indirect tax on food. This "spike" will break Gordon Brown and his political rating will slump well below any other political leader in history. I also expect there will be a vote of no confidence late in the year and Jack Straw will become PM.
I work for a global tier 1 investment bank - yet - with a good record in Credit Derivatives. I can can see if the price of oil keeps going up this will trigger a number of bankruptcies, for example in consumer facing industries dependent on oil, such as the airline industry, where margins are thin. The way credit derivatives work is that they are an insurance policy against companies going bankrupt - if this starts (or even a strong rumour) to happen there will be a second (much larger) credit crunch as banks will be uncertain who is holding what losses across their non-mortgage bonds. If that happens then we will really be in unknown territory in terms of how deep a recession will go.
Wednesday, May 07, 2008
Gordon Brown's Imperfect Storm
THIS article from Goldmans says oil will reach $150-$200. Frightening stuff. Even more frightening is this analysis from one of my regular correspondents...