Mar 20

Junk Bonds

I was sitting the other night watching BBC Repeat (BBC Primes new name) and it suddenly occurred to me that 2007 will actually be a lot more momentous in hindsight than it appeared to be at the time.

2007 will be remembered as the long fuse, the year in which things changed and another year when corporate greed and the stupidity of bankers, again led us down a garden path heading for the compost dump!

With the estimated total cost of Banking Greed, otherwise known as packaged debt, estimated now at $1 trillion and rising and with the world’s job centres filling with pin stripes, the slow burning fuse will only show us the size of its attached bomb in 2008.

If the sub prime debacle was initiated in SA it could have simply been called Junk Bonds, but that’s where the joke ends. With interest rates 50% up in a year the number of repossessions, especially in Johannesburg, on the rise by May next year there could be bargains for those who are cash rich or have the ability to borrow correctly!

These changes in our financial surroundings though are truly international, the US is hardest hit and is using the opportunity to let the dollar devalue and boost its home industries. Local products in the US now look cheap compared to expensive imports and the additional spending of foreign visitors also helps.

In the UK the banks are being taken to the cleaners, Northern Rock is now virtually privatised by the Bank of England while, HSBC, HBOS and Barclays have all taken a battering over their potential exposure to the “Junk Bonds” phenomenon.

More interestingly and possibly even more slow burning and corrosive is the rising spectre of inflation. The UK is seeing a 15- 25% increase in the price of its stable food stuffs. As the oil price impacts on production and delivery so demand for the worlds food from, guess who again, China drives up the price. Petrol in the UK just went through £1 a litre, a price not seen since 1981, and those were the days of very hard yards!

2008 will be an interesting (although I refuse to use that Chinese proverb about interesting times, as it’s actually a curse!). Financial advisors and property salesmen will have to work extra hard to keep clients happy and make a living. Who knows however, it may separate the wheat from the chaff, the men from the boys and all those other cute only the strong survive, one liners.

South African Dictionary
Junk Bond: A home loan approved by a bank more interested in a quick buck than the quality and profile of the lender.

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