FINDINGS
All the articles in the Economy category, clipped by Trend Monitor 2.0 from Clipmarks , are suggesting that the global economy is teetering on the brink of a serious, perhaps un-precedented reversal. Consumers and corporates are up to their eyes in debt, and hedge funds are described as nearing the exploding point. The US housing market is deflating faster than ever before, while the stock market is described as a “Dead Man Walking”.
Consumers: Consumers are portayed as “taking a break” on spending as major US retailers reported April sales which were described as “the worst on record”.
Housing: With home sales estimated by the US National Association of Realtors to have suffered their biggest drop in nearly two decades, Robert Shiller, the Yale Economist who predicted the Internet bubble, is cited in ‘The Financial Times’ warning of a housing bubble “to match the Internet bubble”. He says UK and Spanish house prices are twice as over valued as in the US.
Trade: The US trade deficit is reported reaching a six month high on May 11, while China’s trade surplus is said to have doubled in March continuing a two year accelerating trend with its main trading partners, the US and Europe.
Markets: Companies are reported re-purchasing shares in un-precedented numbers boosting sharing prices, but setting the stage for “coming tsunami” of equity supply. The cost of borrowing is expected to increase, which will add to “the swollen ranks of lowly-rated firms that are up to their necks in debt” which will have to sell shares — as well as various other assets — as a matter of survival, often regardless of price. Meanwhile, Warren Buffet calls the $1.6 trillion hedge fund industry with its fast trades in and out of assets “a fool’s game”. On May 5 ‘The Daily Reckoning’ suggests “Practically every one of them is walking around with dynamite taped to its belt”.
Debt: According to the Bank of England, a “surge” in cheap corporate lending and looser credit standards is an increasing danger to the global financial system. ‘The Financial Times’ quotes Larry Fink, the chief executive of BlackRock, the $1,000bn-plus fund management group, saying “lending to highly indebted companies was becoming lax in ways similar to those that have undermined the US subprime mortgage market, making the leveraged loan market tomorrow’s problem”.
SOURCES
Clipmarks collection of key quotes
Hedge funds – The perfect storm
The New York Fed warned this week that hedge funds posed
the biggest threat to investors since the LTCM crisis of
’98. Back then, the Fed organised a $3.6 billion bailout.
But that kind of money is peanuts today. Another $60
billion was raised by the funds last year alone. Today,
they are a $1.6 trillion industry. And they are much
more leveraged than they were 10 years ago. Practically
every one of them is walking around with dynamite taped
to its belt.
What’s makes the situation especially dangerous is that
they all tend to show up in the same places at the same
time. “Returns are increasingly correlated,” says the
Fed, which is the Fed’s way of saying they are all doing
the same thing. So, when one blows up…they all might
blow up. And when they all blow up…it’s likely to send
a cloud of smoke and debris over the entire world’s
financial markets.
Source – Bill Bonner, Daily Reckoning, May 4, 2007
Comment – Factor in corporate and consumer debt and the future for the global economy is challenging to say the least. On the other hand, local economies should do relatively well, as might the virtual / knowledge economies. (J.W.)
Commercial debt bubble inflates
Money…money…money! Deals…deals…deals..!
It is glorious to get rich…as Deng Tsaio Ping put it.
And many people, all over the world, think they are bound
for glory.
Meanwhile, the other head hangs down in despair. “Actual
underlying conditions of the world economy continue to
deteriorate,” it mumbles.
Larry Fink, CEO of Black Rock, a trillion-dollar fund
management company, spoke out last week and said that all
these mergers and acquisitions were going to cause “tomorrow’s problems.”
Why? Because they are all funded with debt. And lending standards for big, commercial deals have gone the same way as the lending standards for people buying trailers. “Standards have deteriorated to a level that we never even dreamed we would see,” said Fink.
Source -The Daily Reckoning, May 2, 2007 [dailyreckoning@electricmessage.co.uk]
