Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20
Global "Debt Mountain": Beware of This "New Peak" - 13th Nov 20
Overclocking Zen 3 Ryzen 5600x, 5800x, 5900x and 5950x to 4.7ghz All Cores Cinebench R20 Scores - 13th Nov 20
Is Silver Leading Bitcoin or is Bitcoin Leading Silver? - 13th Nov 20
How Elliott Waves Simplify Your Technical Analysis - 13th Nov 20
How to buy Bitcoins using debit/credit card? - 13th Nov 20
Will COVID Vaccine Kill Gold and Silver? - 12th Nov 20
Access to Critical Market Reports - 12th Nov 20
Stock Market Dow Futures Reach 30,000 on News of COVID-19 Vaccine Trials Success - 12th Nov 20
8 Terms & Conditions You Must Know Before Asking For Life Insurance Policy Quotes - 12th Nov 20
Gold Stocks Post 2020 US Election Outlook - 11th Nov 20
Champions’ League Group Stage Draw: All You Need To Know - 11th Nov 20
Stock Market Secular Trend - 11th Nov 20
Stock Market Correction Curtailed by US Election - 11th Nov 20
What Causes a Financial Bubble? - 11th Nov 20
Ryzen 9 5900X RTX 3080 - Scan.co.uk vs Overclockers.co.uk UK Custom PC System Builder Review - 10th Nov 20
Killing Driveway Weeds FAST with a Pressure Washer - Saving Block Paving from LOTS of WEEDs - 10th Nov 20
Trump Fired, Biden Hired, What Next?  - 10th Nov 20
Looking for a Personal Loan? Here Is What You Have To Know  - 10th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Credit Crunch Anniversary and Mega Trends Investing

Stock-Markets / Credit Crunch Aug 04, 2008 - 01:09 AM GMT

By: Nadeem_Walayat

Stock-Markets Diamond Rated - Best Financial Markets Analysis ArticleThe 'official' anniversary of the credit crunch is linked to when the European Central Bank stepped in to provide an unprecedented amount of liquidity by pumping in $130 billion into the European banking system following news of the French bank Paribas freezing three of its hedge funds due to exposure to the US subprime mortgage market as panicking investors had been dumping holdings of mortgage lenders and mortgage backed derivatives and so began the self feeding credit crunch cycle of mortgage backed losses leading to asset price deflation leading to further tightening of the money markets as banks sought to hoard cash, as they lost confidence in their pricing models of the products they were trading with one another, which is more or less where we are today as the derivatives market continues to deleverage.


However the credit crunch was clearly evident much earlier as i warned in the article of 31st July 07 that the credit crisis had been brewing since at least Feb 2007 as increasing distress was observed amongst participants in the the US mortgage backed securities market which was most evidently made clear with the blow up of the two Bear Stearns hedge funds which pointed the way towards the brewing liquidity crisis as financial institutions were increasingly incapable of valuing their US mortgage backed derivatives. The problem was that even though the subprime market was only estimated at $100 billion, the derivatives magnified the exposure to at least $1 trillion, and maybe as high as $3 trillion of bad debt exposure (Credit crunch Special August 07)

Despite reassurances from central bankers that it was business as usual, it was clear to experienced market analysts that a fundamental change in trend had taken place that had strong repercussions for both interest rates and asset prices which at the time contributed towards my interpretation for much lower interest rates in the US and UK and an imminent bursting of the UK housing bubble, as well as a much tougher climate for stock market investing. The stocks sector at most immediate risk was the banking and financial sector , whilst at the time not wanting to take on the legal department of a big UK bank by suggesting a run on a bank was imminent, I did however point the finger as to the risky nature of one bank in particular called Northern Rock a good 3 weeks before it went bust in spectacular style as a consequence of the frozen money markets and the extreme degree to which it financed long-term mortgage loans via short-term money market borrowings.

The original estimated losses of $200 billion have continued to mushroom higher, where the the estimate of losses keeps doubling every few months, from $200 billion, to $400 billion to $800 billion and now most recently $1600 billion. How high will the actual losses be ? Well that is clearly not something that can be accurately estimated as we have yet to pass the worst point of the credit crisis which will be felt amidst the recession and continue afterwards as it may take at least another 5 years for the banks to work through the bulk of the bad debts.

Key requirements for an end to the crisis is for the US housing market to stabalise, which the most recent data suggests is not happening yet. However the US central bank and government having thrown the moral hazard rule book into the dustbin many months ago are embarked on a programme of ever escalating bailouts to bring to a halt to the slide in US house prices so as to unfreeze the ongoing chain reaction of loss of confidence in the financial system, the price of which has been the loss of value of the US Dollar. This whilst being achievable as eventually the hundreds of billions if not trillion plus wracked up as bailout debt will have the effect of arresting the housing market slump, however the price for which will be a depressed housing market and economy for many more years than if the US housing market had been allowed to complete its market correction.

The implications are that central banks across the globe are adopting similar money printing bailout strategies of accumulating ever larger amounts of government debt via record breaking budget deficits. The surge in government debt will undoubtedly impact on the bond markets as it is inflationary and implies stagflation which is being confirmed by recent economic statistics. Therefore in this climate even after the coming recession, economic growth and average 'real' corporate earnings are likely to underperform. As the deflation of cheap chinese goods, and cheap global food and even more importantly cheap energy are long gone.

This is going to make the next 10 years and beyond a much tougher investment climate, where it is going to be increasingly difficult for investors to generate a return in real-terms i.e. beyond the rate of inflation.

Emerging Markets Mega Trend Investing - The poor earnings climate will therefore require key long-term strategies of focusing investments in sectors and countries that will continue to benefit from the long-term mega trends of the commodity and energy bull markets, as well as the transfer of wealth from the western world to the BRIC emerging markets, especially those countries such as Russia and Brazil which are resource rich. The stock markets are correcting from overbought states in these countries, which in China's case had risen to a Mad near Lunatic pricing level, as i warned of last October, but the subsequent declines to below 3,000 enroute towards 2500 on the SSEC are perking my interest with a view to long-term accumulation. Russia has for several years now been my favored long-term investment of all of the emerging market as I consider it is where China was 10 years ago with the added bonus of immense natural resources, therefore the sell off in sympathy to the global economic slowdown and asset price revaluations gives another opportunity to accumulate for the long-run.

Though its not all gloom and doom for those in the West as savers have been presented with golden opportunities to fix cash savings at high interest rates well beyond the base interest rates as cash starved banks seek to get as much cash walk in through their high street branch doors. For instance in the UK there exist a number of fixed savings products paying between 7% and 7.2% per annum fixed for upto 3years, this in a climate where the UK base rate is at 5%, more than 2% lower. Add to this the increasing probability of deep UK interest rate cuts as the UK economy falls off the edge of a cliff, towards a recession during 2009, implies that UK rates will start to be cut either in advance of or following the release of quarter 3 GDP figures this year.

Surging Inflation is a red herring as the analysis of March 08 warned that the rise in inflation would prove temporary and stagflation would give way to deflation towards the end of this year which would be preceded by a peak in commodities across the board to be followed by a correction that would last as long as 2 years. if anything this outlook has been reinforced by subsequent events as the credit crisis continues to go from bad to worse and commodity markets such as Crude OIl are giving clear signals that a top is in, despite wishful thinking on part of a large section of the media that seeks imminent black swan events such as an US or Israeli attack on Iranian nuclear facilities.

Despite this we remain in a secular commodities bull market that will resume after a deep correction and that will hit some commodities harder than others which if nothing else will give long-term investors an opportunity to accumulate for the long-run as short-term speculators switch directions therefore driving commodity prices sharply lower in a short space of time, which implies increased volatility and much hair pulling amongst short-term investors. Therefore if your not prepared to hold for the long-term i.e. over 5 years then you probably should not be in the market right now or looking to invest, in which case best stick to cash.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

King Pin
04 Aug 08, 22:55
Oil Peak

Oil is down from about $150 to $120 thats 20% down, so its easy to say its topped after its fallen !


Nadeem_Walayat
05 Aug 08, 10:00
Oil Forecast
Hi

Crude oil was forecast to fall to $110, as per analysis of 4th July when it was trading at $146.

http://www.marketoracle.co.uk/Article5325.html

NW

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules