Stable conditions

‘Tis the season to be jolly, and is the time of year when I have the delights of seeing my children in the traditional nativity play. The story is familiar to all of us. At this time of year our thoughts also focus on the potential for giving, or in my children’s case, receiving gifts.

Quite appropriately in the financial world, the central banks want stable conditions (unlike Mary and Joseph, who would have rather been in the inn). The UK’s very own leading wise man, the appropriately named Mr King, provided Northern Rock with a further gift yesterday by roughly doubling the Bank of England’s commitment to £56 billion. The Northern Light continues to glow, albeit dimly.

One of the kings in the nativity brought the gift of gold. Our King’s recent promise to Northern Rock equates to roughly 39 tonnes of gold, but sadly the Bank of England has only around 31 tonnes of gold in its vaults.

The second king brought Frankincense, which is usually mixed with oils to anoint new born infants. Will our king manage to oversee the rebirth of Northern Rock? Can the company’s reputation be salvaged? Will Mr Branson’s virgin birth be delivered?

The third king brought myrrh, an embalming material traditionally used at funerals. Our King told the Treasury Select Committee yesterday that “a painful adjustment faces the global banking sector over the next few months as losses are revealed and new capital is raised to repair bank balance sheets”. I think that the effects of the credit crunch have much further to run – given that UBS (arguably the most cautious and reputation-obsessed investment bank) announced that it has lost $10bn on AAA-rated CDO exposure, you can be sure that the tidings to come from the banking sector will not be of comfort and joy.

Mr King is not the only wise man bearing gifts – the ECB have injected €350 billion worth of Euros into the system. The desire for a return to stability, peace and quiet is evident. But will the recent central bank activity and the season’s extra liquidity be remembered as a Christmas nativity, or will it be Christmas naivety?


The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Richard Woolnough

Job Title: Fund Manager

Specialist Subjects: Government and corporate bonds

Likes: Running, cycling

Heroes: Mohammed Ali, Winston Churchill

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