More Problems Expected for 2008

Jack Crooks takes a look financial firms and subprime mortgage markets across the U.S. In this issue of Money and Markets, Mr. Crooks examines the different sectors of the economy that have plunged in 2007.

Jupiter, FL (PRWEB) December 30, 2007 -- Jack Crooks takes a look financial firms and subprime mortgage markets across the U.S. Mr. Crooks examines the different sectors of the economy that have plunged in 2007.

Equity investors felt good about their portfolios in the first six months of 2007. But that changed when a global credit crunch rocked the risk-taking attitude and shook up equities in the latter half of the year.

The caution flags were finally flying because the risks were getting harder and harder to ignore:

-   Financial firms all over the U.S. and Europe struggling to cope with the credit crunch, taking write-offs in the tens of billions of dollars;

-   Subprime mortgage losses and write-downs growing far larger with cuts and bruises morphing into gaping wounds for major lending institutions;

-   Banks precariously close to being unable to expand lending practices with net losses, ratings downgrades, and dwindling assets all taking their toll on capital.

But even a laundry list of problems couldn't dash all hope; equity investors remained mostly of the bullish persuasion thanks to the Federal Reserve. Looking to placate Wall Street, the Fed lowered the Fed Funds and Discount rates and gave investors a reason to buy stocks.

Subprime mortgage problems on both sides of the Atlantic have morphed into a global credit crisis. Banks have gotten themselves into trouble by investing in what has turned out to be complicated bundles of bad debt.

The whole mess got started when the most complex investments were lumped into the investment category of debt-backed derivatives.
This breed of investments acts a lot differently in the real world than creators expected. And now, banks are stuck with investments they don't understand and are reluctant to lend money because of the need to stockpile liquidity to offset losses.

There are at least hundreds of billions of dollars of bad debt sitting on the balance sheets of financial institutions everywhere. No matter how much external liquidity is provided by the Fed and others, it's still bad debt. And even though central banks intend to direct their organized bailout right where the biggest threats exist, their efforts won't be enough to clean up this mess.

Throughout 2007, Crooks mentioned a large imbalance in the foreign exchange market: The widening gap between the British pound and the Japanese yen. As the pound became increasingly overvalued and the yen increasingly undervalued, it became more and more likely that the gap would soon collapse.

As The Bank of England loosens its reins, the British Pound could stumble and fall. When the British pound pushed above $2, British pound sentiment became overly bullish, even though the fundamental backdrop in the U.K. was deteriorating. At that point the market didn't care about fundamentals. Everyone was buying pounds. But the credit crisis has now spread beyond U.S. borders, and investors are slowly taking notice.

No one expected the U.S. subprime mortgage fiasco could impact the U.K. economy. Reluctance among the country's mortgage lenders to lend is taking its toll and U.K. house prices are falling. Credit woes are growing and the Bank of England (BOE) is keeping its eyes peeled for a consumer slowdown that could lead into a broad economic slowdown in 2008.

The (BOE) is already lowering interest rates, and further rate cuts into 2008 can be expected.

"Why? On top of a softening economy, inflation is moderating enough to give the Bank of England some wiggle room. So with inflation only an afterthought, the BOE will turn their attention to the economy and away from interest rates and ultimately away from the British pound," Mr. Crooks states.

To read this issue online, please visit:
http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1321

About Jack Crooks & Money and Markets

John (Jack) Crooks is the founder and president of Black Swan Capital, an independent advisory firm specializing in foreign exchange and currency markets investing for retail and institutional clients. A seasoned financial advisory with nearly 20 years of investment experience, Mr. Crooks uses both quantitative and qualitative approaches to determine the fundamental driving force(s) behind the movement of the currency, capital, and commodities markets. He is the editor of Weiss Research's latest investment offerings, World Currency Alert and World Currency Options, which were launched in August 2007.

Mr. Crooks also founded Ross International Asset Management, a discretionary money management firm specializing in global stock, bond, and currency asset management for retail clients. Previously, he was general manager of Plexus Trading, where he specialized in currency futures and commodities trading. During his successful career, Mr. Crooks served as chief currency and futures strategist of M2 Futures Inc., an investment boutique headquartered in Chicago, as well as vice president of Global Strategic Research for an international investment boutique, where he was responsible for providing daily advice and global strategy analysis.

Prior to entering the investment arena, Mr. Crooks held various corporate finance positions. He has written extensively on the subject of global currencies and international economics and has been published in Asian Times, Futures Magazine, Barron's, Bloomberg, Dow Jones Newswire, and across many financial websites. He has also appeared on Bloomberg TV and CNBC.

Mr. Crooks holds a bachelor's degree in finance from Florida State University and a master's in business administration from the University of North Texas.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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