The sub-prime market explained

You want a real crisis?

Tom Stevenson in the Telegraph today reviews the new book A History of the London Stock Market 1945-2007, and puts the current market volatility in some perspective-

The year 1974 opened with a sky-high oil price, miners and rail workers on strike, a million laid off as energy-starved industries cut production and sterling in free-fall. NUM vice-president Mick McGahey called on troops who had been drafted in to keep coal moving to remember their working-class roots and defy orders. Tony Benn plotted state intervention in Britain's biggest companies while Denis Healey promised to squeeze the rich until the pips squeaked. Both NatWest and Lloyds fell below their par values and by the end of the year the FT30 had fallen 70pc below its May 1972 high.

Schroders Agriculture Fund closed

The Telegraph reports today that Schroders has closed its $6bn agricultural fund after too many investors rushed to plough money into it.

The Alternative Solutions Agriculture Fund, invested in grains and livestock, returned 48pc since it was launched in October 2006.

The fund's top five holdings at the start of the year were wheat, soybean, coffee, corn and sugar.

Buffett back on top

The BBC reports that Warren Buffet has reclaimed the title as the world's richest man. Last year Buffett's wealth increased $10bn to $62bn.

A lot of money, $62bn. But how much is 62 billion (or 62,000,000,000)? Let's look at time-

• 62 billion seconds ago it was the year 42AD - the year that the apostle Paul converted to Christianity and Claudius was emperor of the Roman Empire.
• 62 billion minutes ago was the year 115,952BC - it's difficult to say exactly what was happening in the world this year - history hadn't been invented yet - but generally Homo Sapiens (that's us, modern people) were just evolving in Africa.

A billion here, a billion there, pretty soon...

Forbes magazine has just published its latest rich list. Some highlights-

• A record 1,125 individuals with a combined net worth of $4.4 trillion made it into Forbes' 2008 list of billionaires.
• Two-thirds of those on the list are classified as self-made billionaires, and 50 of them are under the age of 40.
• Mark Zuckerberg, 23, the founder of the social networking site Facebook, joins the list as the world's youngest billionaire.
• Patrice Motsepe joins the list as South Africa's first black billionaire with a net worth of $2.4bn.
• The world's richest woman is the French L'Oreal chief, Liliane Bettencourt, 17th on the Forbes list with a net wealth of $22.9bn.

The least well-timed investment decision of this or any age

Between July 1999 and March 2002, Gordon Brown sold 395 tonnes of the UK’s gold at an average price of $275.6.

Robert Peston calls Mr Brown's trade as one of the-

“least well-timed investment decisions of this or any age”

Today gold traded above $984.

Don't forget inflation

According to the FT's Alphaville blog today-

What is remarkable about the past 20 years is not the performance of stocks, but the way inflation was contained.

Now, Barclays says, this is coming to an end. Taking a four-year rolling average, inflation on both sides of the Atlantic has risen by more than 1 per cent during the current expansion - the first time this has happened since inflation was tamed in the early 1980s.

This is attributable to the growth of the developing world. With China and other countries demanding more, and the supply of resources limited, the logical consequence is inflation.

With inflation back as a real risk, policymakers no longer have the easy solution they have used for the past 20 years - cutting interest rates at the first sign of trouble. That implies the current credit crisis is not another turn in the cycle, but the end of an anomalous period when inflation was under control. It also implies the level of inflation in China is crucial.