Beware Nobel Prize winners bearing gifts

Gordon Brown and his press cronies appear to be very keen to stress the plaudits he has been receiving from Professor Paul Krugman, the recent winner of the Nobel prize for Economics. So much so, that - according to Nick Robinson - Brown is now taking Krugman's advice directly in advance of the G20 Summit tomorrow:

One whose advice will have been listened to particularly closely is Professor Paul Krugman - the man who in the week he won the Nobel Prize for economics described Mr Brown as the saviour of the global economy. It's a plaudit that the prime minister is understandably fond of.

Gordon might do well at this point to remember a previous Nobel Economics Laureate, Myron Scholes, who in 1997 shared the Nobel Prize in Economics with Robert C. Merton "for a new method to determine the value of derivatives". Whilst Scholes option pricing strategy made sense to fans of bell curves and enabled countless bankers to charge exorbitant fees for plugging a few numbers into Excel and declaring that the resulting instrument was "low risk" - for the investors of Long Term Capital Management and those caught up in the disaster in 1998 his academic theories led to some unpredictable financial outcomes which they would rather forget.

Unbelievably, most of the Financial Service industry still relies on this convenient, but fatally simplistic model of laboratory randomness when making pronouncements on risk.

If it looks too easy, it probably is.
 

UK in worst position of G7 countries

Graham Ruddick has an interesting piece in the Telegraph explaining some of the reasons behind the appreciation of the carry trade currencies. Whilst carry trade unwinding has made the fall of sterling towards the $1.40 mark much faster, in the end the level it reaches is determined by economic fitness of the UK in relation to other major economies.

For many, the most telling thing about the article is the following quote from Standard Chartered:

"The reason that sterling is doing badly is that, in our view, the UK is expected to be the worst performer among the G7 economies over the next 6-12 months because it will contract around 2pc next year," says Mr Mann at Standard Chartered".

When Gordon Brown mentions recession, he adds the prefix "global".. at PMQ's the other day he twisted and turned reeling off the names of other G7 countries before tacking on the UK as if it were an innocent victim of events beyond it's own control. To economic incompetence and distasteful greed for power we can add unseemly hubris - and total contempt for the electorate which he has betrayed.
 

Sterling Crash Now worse than Black Wednesday

Sterling now suffering it's worst week since 1982 (by a long, long way) - 30% worse than Norman Lamont's Black Wednesday in 1992.

Week Ending	Open	Close	Percentage
25 October 2008	1.7285	1.5498	-10.34%
19 September 1992	1.8723	1.7342	-7.38%
27 April 1985	1.278	1.216	-4.85%
03 August 1985	1.4278	1.371	-3.98%
04 October 2008	1.8445	1.7716	-3.95%

Hope Gordon is proud that he has not only "abolished boom and bust" but is now, apparently, "leading the world out of recession".
 

FTSE at historic lows, Pound Tanking, Growth -0.5

Update: The GDP figure is worse than expected at -0.5

FTSE trading within 20 points of October (intraday) low, and falling.

Pound at $1.56 and falling fast...

If this is leading the way out of a recession then I would hate to know what going into one looks like.
 

“Gordon Brown leading the world out of recession” - Markets beg to differ

Labour’s hubris reached new heights yesterday evening on Question Time when Roy Hattersley told the audience that Gordon Brown was now “leading the world out of recession” – an impressive claim given that (officially at least) we are only going to enter one today.

Either Hattersley doesn’t understand the difference between a liquidity trap and a recession or he has a touching faith in the ability of Labour spin doctors to convince the lumpenproletariat that the unemployment queue in which they are standing and the bailiff at their door are simply figments of their imagination, unpleasant side effects of an international crisis which is not of Labour’s making.

The currency markets, of course, are a tried and trusted mechanism for telling us which countries are going to withstand a recession better than the rest – which is why the pound is about as popular on Foreign Exchanges as Phil Woolas at a Cabinet meeting. The fall in the pound, which could now test the historical 1992 dollar lows, is only going to be made worse by the spending plans of a Government desperate to cling on by their fingernails. Living standards will be hit faster and harder because after eleven years of New Labour we just don’t have the balance sheet to be issuing new debt on this scale.

Edmund Conway in the Telegraph this morning compares Darlings new found faith in Keynes to the actions of a Gambler.. but as everyone knows there is a world of difference between the player who doubles up when he is winning and the desperate man who stretches the last of his credit trying to claw his way back into the game.
 

Is this a sterling crisis?

Just in case there is any doubt about the size of the headlines which Mandelson needs to cover up, the chart on the left (composite sterling since June '07) gives a pretty good idea of just how bad a sterling crisis we are facing, and how quickly the fall is accelerating.

Those that are hoping blithely for lower food prices, energy costs etc. in the months to come may want to examine how much of the food they eat and the oil they consume is denominated in sterling...

On the bright side, exports will be cheaper. If there are any.


Seekingalpha speculates that the pound may now re-visit the historical lows of 1992, and trade below $1.40. Perhaps Gordon shouldn't rule out 15% interest rates in such a hurry!