Jack Crooks takes a look at the Federal Reserve and their plans to flood the banking system with money. Mr. Crooks examines the British pound and what's in store for it.
The U.S. Federal Reserve and four other global central banks have announced a plan to flood the banking system with money. Specifically, the Fed is to auction a minimum of $40 billion in funds to banks in an effort to ease the blockage in the money markets and shore up bank balance sheets. It's also authorizing $24 billion in currency swap lines to channel tens of billions of dollars to other financial institutions based in those banks' jurisdictions.
On December 17, the European Central Bank (ECB) took things one step further by pumping the equivalent of $500 billion into the financial system. This is in addition to the money it promised under the central bank co-op deal with the Federal Reserve. The bank's president, Jean Claude Trichet, has made it clear that bank members will remain focused on the heated pace of inflation, that they are not in a position where rate cuts are an option. And if the ECB is forced to do a U-turn and cut rates, the euro is in trouble. That could take some time, however.
However, things look even more dire in the U.K. The British pound is losing sight of its happy place. Shortly after a dramatic push above the $2 level, it was expected that the British pound would hit a rough patch and fall back. Why? Because sentiment became overly bullish even as the fundamental backdrop in the U.K. was deteriorating.
The market was at a point where it didn't care what was happening in the U.K. economy and across the globe everyone was buying pounds. But as the credit crisis spread beyond U.S. borders, the question marks began to surface in the U.K. No one seemed to take notice until customers lined up outside of Northern Rock bank branches across Great Britain to withdraw their savings. Investors were stopped dead in their tracks.
The Bank of England will keep lowering rates and pushing down the pound's value. And like the rest of Europe, plenty of soft spots are popping up in the U.K.'s economy. But unlike the European Central Bank, the Bank of England is already lowering interest rates. Reluctance among the country's mortgage lenders is also taking its toll. U.K. house prices fell for the third consecutive month in November.
"As rates in the U.K. come down, the British pound will struggle mightily to compete with other currencies around the world," Mr. Crooks states.
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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.