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Words from the (Investment) Wise for the Week That Was (May 12 - 18, 2008): Part II

Bloomberg: King says further "shocks" may push UK into recession
"Bank of England Governor Mervyn King speaks at a news conference in London following the publication of the bank's quarterly inflation report. The bank said inflation will overshoot its central 2% target in two years if it cuts the benchmark rate to 4.5% in 2009 as investors predict. The Bank of England this month left the rate at 5%. Charlie Bean, BOE's chief economist, and Paul Tucker, policy maker, also speaks."

Source: Bloomberg, May 14, 2008.

Reuters: Repossession orders surge in UK
"More people in England and Wales are just one step away from losing their homes than at any time since the early 1990s as the credit crunch bites, figures showed on Friday, and experts say things can only get worse.

"More evidence of a weakening economy adds to Prime Minister Gordon Brown's woes. Pollsters say support for his Labour Party has fallen to a record low and he now faces losing power to the opposition Conservatives at the next election due by May 2010.

"The Bank of England will also be concerned to see more homeowners failing to keep up with mortgage payments. Despite three official interest rate cuts since December, the credit crunch has forced many mortgage lenders to raise their rates.

"Court orders for mortgage repossessions rose by 17% in the first quarter of 2008 compared with the same period in 2007, hitting 27,530, the Ministry of Justice said.

"'Unfortunately the situation seems set to deteriorate significantly further,' said Howard Archer, an economist at Global Insight. 'Particularly if the economy suffers an extended marked slowdown and unemployment starts rising.'

"Repossession orders have tripled in five years but remain well below levels seen in the early 1990s recession when many homeowners were plunged into negative equity - with mortgage debts exceeding property values - as house prices crashed."

Source: Matt Falloon and Sumeet Desai, Reuters, May 9, 2008.

Bloomberg: China raises bank reserve ratio as inflation surges
"China ordered banks to set aside more deposits as reserves for the fourth time this year after inflation accelerated, approaching the fastest pace since 1996.

"Banks must park a record 16.5% of deposits with the central bank, up from 16%, the People's Bank of China said today on its website. Consumer prices rose 8.5% in April from a year earlier driven by food costs, the statistics bureau said today.

"The increase will freeze about 208 billion yuan ($30 billion) in the banking system, helping to cool the world's fastest-growing major economy by restraining lending. A 7.5% point increase in the requirement since the start of last year has failed to stop lending growth that's helped Chinese banks to record profits.

"'The central bank needs to do more and do it sooner rather than later,' said Kevin Lai, senior economist at Daiwa Institute of Research in Hong Kong. 'The reserve requirement is not sufficient to curb inflation.'"

Source: Nipa Piboontanasawat, Bloomberg, May 12, 2008.

GaveKal: China raises reserve requirement ratio

Source: GaveKal - Checking the Boxes, May 16, 2008.

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