What does the New Year have in store?

If I could tell you that, I would be typing this from a tax free Caribbean Island.

I guess the locale doesn’t automatically make you a genius, at least not in my case. I usually like to see where January takes currencies then do the opposite for the rest of the year. The hangover optimism of January may be a little tempered this year but make no mistake the overall direction is seldom figured out in the first 31 days. I’m betting this year will be no different.

Things to look forward to: a new US President (doesn’t matter who, just new is enough); last year’s mistakes by pretty much every banker may be a slightly fuzzy memory; end of year results hopefully drawing a line under a lot of bad news for the finance sector. Will you see all of the shenanigans exposed? Unlikely, but time and booked profit do a lot to shore up some questionable banks’ bottom lines and balance sheets.

All indications are that 2009 will be a consolidating year, finance will contract, businesses will trim fat; governments will reign back spending (or increase it, depending on where in the world you are). Some see spending as the way to shore up the economy, others can’t borrow enough to spend more. On that, Credit Default Swaps’ (CDS) insurance is now trading at a premium for Sovereign debt over some corporate debt. Such is the volume of Sovereign debt taken on by financial institutions that the demand for insurance against a default has sky rocketed. Does that mean the US Treasuries are more risky than McDonald’s debt? If you are in the insurance industry, yes, but then I don’t profess to understand insurance and probably never will, just write the cheque and be done with it.

In reality there may be a real economic impact in Cayman. It becomes real when you, or I, or someone you know is no longer needed in their job. In all likelihood it will happen, it may be elective by some of the expats, jumping before being pushed. But I will bet that you will know someone affected before too long. I hope I’m wrong but I’ve already seen it happen.

On to the fun stuff, for those still earning USD or KYD, 2009 could see some spectacular opportunities for spending/converting your cash. Some early predictions have Sterling at parity with euro, and both at parity with the dollar (US one). You have to go back to 1985 to get close for Sterling. Not so far for the euro, try just 2002 for that one. What’s good for you personally will be disastrous for the tourism industry. If you thought European travelers were hard to attract when Cayman was half the price…

I’ll sign off this New Year’s column with this: there are always opportunities; taking advantage may take a leap of faith…or bravado.

Disclaimer: The views expressed are the opinions of the writer and whilst believed reliable may differ from the views of Butterfield Bank (Cayman) Limited. The Bank accepts no liability for errors or actions taken on the basis of this information.



Butterfield Bank’s Phil Turnbull