Tuesday 27th May 2008

Good morning.

Soros – We face the most serious recession of our lifetime

George Soros, the phenomenally successful billionaire hedge fund manager, has said that “we face the most serious recession of our lifetime”. In short, he made his feeling perfectly clear, by saying that the United States and Britain are facing a recession of a scale greater than the early – 1990s and greater even than the 1970s. He pointed towards the 1970s dislocations when commenting that current market conditions are worse because of the implications of the house price decline, which there wasn’t in the 1970s. Soros, who warned of the dire consequences facing the American economy years ago, when the housing bubble was still inflating, said about the UK “House prices have risen over the years and are further away from sustainable levels than in practically any other country, in terms of house indebtedness and the relationship incomes. The slump may be more gentle that the US, but it will be more drawn out”.

The dollar inched back towards one-month lows against a basket of currencies today, as oil prices were near record highs and the deteriorating U.S. economy. Activity is expected to pick up today as investors return from long weekends in both the United States and Britain, with the market looking to oil prices and stocks for clues on the dollar’s near-term direction.

Expectations of the US dollars longer term direction in particular against the euro, is that we see could it rise towards the end of the year, as Federal Reserve is done with interest-rate reductions and may raise borrowing costs next year. The U.S. currency on April 22 reached a record low of $1.6019 per euro as the Fed decreased its benchmark rate seven times since September to 2 per-cent to spur economic growth. The dollar has plunged almost 44 percent against the euro since the start of 2002.

The Australian and New Zealand dollars rose on speculation the extra yields offered by the nations’ bonds attracted investors. The Australian dollar traded near the highest level in 25 years, whilst the New Zealand dollar climbed for an eighth day, in its longest rally in 14 month.

Crude oil rose above $133 a barrel as a militant attack in Nigeria disrupted supplies and on speculation fuel subsidies in Asian countries will continue to spur demand.

Gold was little changed after gaining in the past two days as higher crude oil prices and the dollar’s weakness against the euro bolstered demand for the precious metal as a hedge against inflation.

Back