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« Portfolio Update 16 January 2008 | Main | Agnico Eagle: Up 100% in 18 Months Since Our BUY »

US Sub-Prime Problems Surface Down Under!

The sub-prime fiasco rolls on reaching the shores of Australia and New Zealand as reported in The New Zealand Herald over the last few days.

US Sub-Prime Problems Surface Down Under!

On Friday the 11th January 2008 an article by Adam Bennett in the Business section of The New Zealand Herald revealed that a number of banks including the Commonwealth Bank of Australia, National Australia Bank, ANZ and Westpac have a combined exposure of $850 million to the financially wounded Countrywide Financial. What surprises us is that it has taken such a long time for this piece of financial news to come to the surface. It also makes us wonder just how much more of this particular problem remains concealed from the public. To cover their position the banks have started raising interest rates lead by the ANZ who raised mortgage rates by 20 points. Bear in mind that most mortgages in Australia are of the floating type, so it is down to those people to pay for the ineptitude of the six thousand dollar tie wearers. (A New Zealand expression!)

Moving on to today, Tuesday the 15th January 2008 the same paper carries a report by Tamsym Parker entitled 'US Credit crisis hits NZ bond investors' where a local company, Fidelity Guaranteed Bond has deferred paying interest on the first six months of its 6.3 year bond. As the article points out it is really hard on the retired population who bought the bond as a top up for their pensions, they are in no position to work their way out of this mess. The volatility of the credit market is blamed for this situation, but it does raise the question of why so many well educated, highly paid captains of our banking and lending institutions followed each other like lemmings over the cliff top. Have we learned nothing from the junk bond era or the demise of Barrings Bank? It would appear not! Here we are again up to our necks in an even bigger financial mess. Is there any punishment for failure? A few heads may roll and have to leave centre stage for a short while, but punishment, we will believe it when we see it.

This credit crisis only serves to add more distrust regarding our banks, our financial institutions, our bond market and our currencies. This distrust will manifest itself into an increase in the flight to safety. And where is this safe haven? Well we are and have been in the gold bugs corner for some time now and see no reason to change camps. As we watch the activity in the Hong Kong market this evening we see gold standing at $910.30 and silver at $16.42. Our precious metals stocks increase in value on a daily basis which allows us a small smile but there is no room for complacency. We must now stay alert and work even harder to ensure that our trades are well thought out and timely, you must also try to do the same.

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