Wednesday, December 07, 2022

United Kingdom and Credit Suisse, in terms of markets

It only lasted a week, he couldn’t take it any more. After a long weekend of discussions and mutual reproach, the Prime Minister of the United Kingdom, Liz Truss; Withdrew from his tax cut plan.

Last week I told you about this so called mini budget which aims to increase the economic activities of that country. Since then it was seen that they were pressurizing the government to drop that idea. The pound’s parity against the dollar experienced a rough week and the British currency experienced a mini-devaluation.

Although the British Finance Minister presented it as a more detailed plan to deal with the economic crisis; The market is focused on a single theme. Not many liked the idea of ​​eliminating the 45% income tax rate paid by people earning more than $168 thousand.

Since last week, doubts have been raised over the effectiveness of the measure because they did not know how and where the government would get the money that it would stop collecting by reducing taxes on the richest. And that was another problem. Many politicians and a large section of the population believed that it would only benefit the wealthy. He thought it was another cool pyramid cup idea that flows from the top to empty the bottom cups.

But yesterday, on Monday, the British government backtracked and said in the voice of the Chancellor of the Exchequer Quasi Quarteng that it would not pursue plans to abolish this tax on the wealthy. They say that they listened to the people, but in my opinion, this is the job of promoters of market forces. An example is the Bank of England’s strong intervention to inject liquidity into the market when investors experienced a stampede last week. Although the new British government wanted to find an out-of-the-box idea, it seemed to be the wrong beneficiary.

And although the Soros team continues to champion the world, it’s time to look back on 2008 and not repeat the case of Lehman Brothers. Like the notorious US investment bank, now Swiss bank Credit Suisse is attempting to finance the gap left several months after the bankruptcy of the Arcgos investment fund in 2021.

Apparently this has not been successful and there are already many indications about the impending bankruptcy of the Swiss bank. If the warnings are true and well-founded, various European banks, including the well-known Deutsche Bank, will be at risk of infection. And I’m not saying that if an increase in the spread of credit default swaps (CDS), that is, Credit Suisse’s “default insurance,” is not saying so.

Be careful, as a report by IP Banking Research last Saturday warned that Credit Suisse is currently trading at 0.23x its book value while Deutsche Bank is trading at 0.3x its book value.

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