Am I alone in thinking that things are getting really nasty out there?
News that Moody’s and Standard & Poor’s are revising the credit ratings of bond insurers in the US is seriously worrying. If they are downgraded, the money market funds run by banks, insurers and pension funds will all be hit.
Many of these money market funds, which ordinary investors regard as ‘safe as houses,’ can only hold AAA grade bonds and will be forced sellers of these bonds into what is an already weak market.
As Ken Murray, the fund manager of the Blue Planet Worldwide Financials investment trust says: “The banking sector is nearly melting down. Freddie Mac has reported losses, house builders are in trouble, sub prime mortgage lenders are going bust and a number of European banks are in serious trouble,” he says.
Yet the equity markets are holding up remarkably well. It just goes to show, before every market collapse there’s a euphoric rise and you can never under estimate the stupidity of investors. We saw this before the dotcom crash, and it looks the same now.
With the hunt on for which European banks are in trouble, Murray reckons that investors should avoid Barclays and UBS. “The Euro Stoxx 50 has got least 20 per cent to fall from here,” he warns.
So there you have it. If this isn’t cause for alarm, I don’t what is.
Armageddon awaits, indeed. Deflation is just around the corner as ‘assets’ plummet in value because the cash is just not there to buy them - and if it is, there is not the will. All those ‘clever’ investment bankers who have spent the past two decades constructing derivatives to hedge risk have only succeeding in building an ever higher wall for the dam - meaning that the pressure building behind the wall is unprecedented in its force.
Even slashing interest rates will do no good - as the Japanese found, 0% is as far as you can go.report this comment