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The Great Global Deleveraging Cycle Continues

Economics / Business Cycles Nov 12, 2008 - 10:03 AM GMT

By: Mark_OByrne

Economics Best Financial Markets Analysis ArticleThe great global deleveraging continues. In a world that has become addicted to debt fuelled growth, the idea that readily available credit may no longer be available, has scared many into facing the truth; credit is not free and should never have been priced as such. Over the past few weeks markets have continue to sell off, outlook for production and consumption are all bearish and thus oil continues its volatile ride losing $2 overnight to its current level of $58 a barrel. (Month to date it is down over 40% in USD terms and more than 62% in euro terms).




Gold is currently trading at $730, it is in a range between $720 and $760, with volatility decreasing, a break to the upside is looking technically possible. Consumer driven inflation worries are abating somewhat with the decrease in the price of oil. Systemic issues are still prevalent and recessionary fears are growing. The markets are trying to quantify the extent of the world's first truly post globalisation recession.

The markets are increasingly been driven by fiscal sound bites - who is getting bailed out, where will the line will be drawn, who is too big to fail? Banks first, industrial monoliths next? These headlines will likely weaken the capital markets by replacing qualitative analysts with policy watching.

Sterling has seen further weakness as international investors begin to shun the currency once seen stable; this has been predicated by stronger yen and a significant unwinding of the hitherto one way bet carry trade, where leveraged vehicles borrow in yen and invest in higher yielding sterling assets. The question now is not if the UK is going to go into a recession but rather how long will one last and how deep will it go. Any and all asset classes that have benefited from or rely on cheap credit will suffer.

A cursory review of the Financial Times will confirm that the bears are firmly in control of the editorial strings, doom is in and it is striking fear at the heart of our economies. Few know what lies ahead, uncertainty is becoming the norm, and consumer confidence is moving from a sense of bewilderment to outright dread.

Economies are generally cyclical - they ebb and flow with the general public's perception of risk and reward. Yes, they can be affected by extraneous factors: an oil find, a currency collapse etc; but generally speaking, they oscillate around the long term mean. It is only when governments get involved and artificially manage the cost of credit to within politically acceptable thresholds, that inefficiencies begin to build in the system. Throw into the pot a measure of globalisation, poor or non-existent regulatory oversight, little or no effective internationally accepted accountancy standards for corporates with global foot prints, and you get the mother of all financial storms.

Below you will see a humorous yet telling chart that depicts the rise and fall of investor emotions. The question is where are we now and how long will we be here.

By Mark O'Byrne, Executive Director

Gold Investments
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Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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