By: RAOUL RUIZ MARTINEZ
Raoul Ruiz Martinez is the resident Independent Financial Adviser for Finesco Financial Services Ltd at the offices of euroFINESCOs.a. He provides financial advice to UK and European expatriates in Portugal with a high degree of client service and total confidentiality. Finesco Financial Services Ltd is authorised and regulated by the UK Financial Services Authority (FSA).
RECENTLY ALISTAIR Darling gave the UK economy a vote of no confidence by suggesting things were worse than we all imagined.
In a now infamous interview in The Guardian, the Chancellor said the economic times are the “worst they’ve been in 60 years, and I think it’s going to be more profound and long-lasting than people thought”. What Darling didn’t realise, or chose to ignore, is that his opinion matters.
If he, the man who is supposed to be the PR machine for the UK economy, thinks it stinks, people will certainly think the economy stinks. If people think the economy stinks they are even less likely to move house and if no one chooses to move house, the economy will stink. As a result, the mortgage world will suffer.
As a result of these comments, Sterling plummeted with many economists linking the fall to Darling’s comments, once again highlighting the importance of confidence.
Surely part of this lack of confidence can also be blamed on thoughtless financial institutions releasing apocalyptic ‘statistics’ every day of the week to gain newspaper inches.
Consumer misery, consumer debt and consumer woe are filling most of the blogs and letters to the media. But the icing on the cake was recently when Sainsbury’s Bank revealed that 1.6 million pet owners are choosing to put their pets down instead of pay for expensive vet bills.
So we are now being told the credit crunch is killing puppies and kittens.
Puppet
Gordon Brown, on the other hand, seems to have lost his own particular brand of discipline. The once indomitable Chancellor now looks more like a reactionary puppet, bowing down to the will of the masses in a vain attempt to claw ground from the seemingly untouchable Conservatives.
The key to solve the mortgage crisis, and hence put out one of the economy’s biggest fires, is to reignite the securities market. Which means the Government needs to intervene and create liquid Treasury bonds. This is clearly understood by the financial industry, and Brown knows we know this – but will he pull through? Will Brown stand up, turn to the ever-doubting Cameron, who last week criticised the plans, and utter, “You stupid boy” and get the mortgage market back on its feet?
Only a week after Darling’s statement, our attention was then turned across the pond to the US. Lo and behold there was an unprecedented move by the US Federal Reserve to take control of the two largest mortgage lenders – the Fannie Mae and the Freddie Mac – and our focus has returned to the source of the crisis that erupted last year.
However, unlike the UK Treasury, the US has already mapped out a plan to securitize the debt and therefore begin the clear-out of this entire humungous illiquidity problem brought about by millions of mortgagees defaulting on their loans.
Action
Headed by the US Treasury Secretary, Paul Hanson, the US now recognised that they cannot allow their markets to continue to sell bad debt to the central banks, such as the Bank of England and the ECB. In taking this action, shareholders in both the Fannie and Freddie will see the face value of their shares reduce and therefore, to no immediate advantage of these existing shareholders and new holders (the US Fed), except to pave the way ahead for their domestic and foreign markets that have proven to be inextricably linked.
In short, the UK Treasury lacks the experience of the US in managing astronomical levels of debt and the effects of both events in the UK and the US have resulted in negative and positive effects on their domestic financial markets, respectively.
Without doubt the US is moving forward, rather tenuously with global inflation murmuring in the background adding to volatility levels, but the UK is definitely in recession and needs a well designed catalyst to catch up.
At any rate, globalisation will always create opportunities and some US commentators have even considered the UK to be on a similar level as themselves in terms of strength and experience. This may be what is lacking in the emerging markets where it may be the turn of the West to offer the next area of opportunity on the global playing field.
You never know, it could make the world a better place and help save the lives of those poor kittens and puppies in the long term.
But on a more serious note, consider seeking independent and qualified expert investment advice in seizing the opportunities through investment risk that will help match your own objectives. You may find that a review of your financial matters or re-placing capital will show you that there is a turn in the tide now that enough madness and mayhem has already passed that has already verged on the ridiculous.
Raoul Ruiz Martinez is based in the Algarve office of euroFINESCOs.a. as an Investment Adviser for Finesco Financial Services Ltd., Glasgow and regulated to advise on capital investments in both the UK and Portugal. He can be contacted either by telephone on 289 561 333 or on email [email protected]
