Recently, I have started to shift my focus out of the U.S. and abroad as the subprime crisis has become a global credit crisis. The myth of global de-coupling (assumption that other economies could thrive without the help of the American consumer) is being dispelled daily. Countries to watch are Canada, Mexico, China, India, Spain, Ireland and the UK. But, there are many more.
I am really looking at what is happening in the mortgage industry and with UK banks and retailers because I believe that the UK is now ground zero for the next leg down in the global credit crisis. Recently, Goldman’s Chief Economist Jim O’Neill said he believes the UK will be hardest hit by the global credit crisis. UK banks are writing off lots of debt and doing rights issues left and right. The UK banks have a lot of exposure to the U.S. as well. All of this has led to layoffs in the City of London.
The real economy in the UK is suffering as a result. The mortgage and retail sectors are really hurting in particular with plunging home sales and declining retail sales. House prices in the UK are now declining.
All of this spells trouble for the UK economy and I expect to see a repeat of the U.S. housing and economic troubles in the coming months. I will keep posting on this as information becomes available.