Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Ghost of John Maynard Keynes- Comments on Economic and Financial Crisis

Economics / Credit Crisis 2008 Oct 20, 2008 - 03:10 PM GMT

By: William_R_Thomson

Economics

Best Financial Markets Analysis Article1/What is your view of how long the financial system crisis will continue and how much deeper it will it get?

 

One can only hazard a guess by looking at other experiences with banking crises. Japan took about 5 years from the time it started to recapitalize its banks. Sweden and Thailand took a little less time but none were V shaped recoveries.   There is a far greater urgency to efforts now in the US and Europe after a year of dithering and denial but these are still early days and the scale being global is larger and we have the unprecedented scale of the derivative problem. It could still spiral out of control requiring the whole banking sector to be taken into public ownership, but more likely we will have an extended period of recession and subnormal growth covering much of the Obama presidency – assuming he wins.

 

He will inherit the most poisoned chalice but with a substantial, probably enhanced majority in Congress, will have an opportunity to do well or, more likely, to screw up. In the face of these uncertainties, the markets could be even more volatile since change causes both many winners and many losers.  

 

2/How deeply do you expect the crisis to effect into the "real" economy and how long the overall downturn (slump/crash/Depression) will last?

In my opinion we could well be at one of those transition points in economic history. The past 30 years of market liberation and deregulation are going to be challenged and called into question in a way unimaginable 2 or 3 years ago. It is quite possible that Obama will be presented with problems akin in magnitude to those facing Roosevelt in 1933, forcing a major rethink in the way the economy is managed. Old industries, such as automobiles, are on their last legs and looking for government handouts. Millions are facing foreclosure of their homes and the middle classes are in retreat.   The healthcare and pensions crises require addressing and come at the worst possible time when the financial sector is in meltdown. The situation in Afghanistan and Pakistan is worsening by the day.

The whole concept of globalisation, on which prosperity has been based, could face substantial challenges if the US economy, in particular, deteriorates significantly. A Democratic lock on Congress and the White House could even see the rebirth of the trade unions.  

3/Has the crash in stock and other financial markets created buying opportunities in general yet, or is the "heat of battle" still so intense as to obscure any coherent strategy? If it is still too dangerous to move back into markets, what signs and signals should investors look for to tell them when it is time to move?

The crash has been precipitated in no small measure by indiscriminate hedge fund liquidation of good assets as their loans are called by their banks and prime brokers. This means that many good assets now have real value even if the markets have not reached their ultimate bear market lows. A sure sign of value is companies with unimpeachable dividend records yielding 50 to 100 percent more than 10 year Treasury bonds. Look at BP and Royal Dutch Shell, for instance. These sorts of opportunities do not arise every day.

Studies show that a significant part of the long term returns from stocks are from dividends. Well covered dividends that can grow are a vital protection against long term inflation that could well be the results of the explosion of liquidity the central banks are pouring into the markets once fear dissipates and animal spirits resume more normal service.

  4/If there are buying opportunities, where and what are they. - E.g. in equity, bond or other markets? Advanced versus emerging markets?  

Outside the government bond markets prices in most asset classes are very much more attractive than they have been except for the bottom of the markets in 2003 and 1974. That's not to say we have seen the ultimate lows. I do not believe we have, but I can foresee a decent recovery rally after the extreme drop into the early days of the Obama presidency – as I expect it to be. That could easily run out of steam as the magnitude of the challenges and the size of the mountain to climb become apparent again. But where there is great value it is a time to buy as Warren Buffett has shown. It's not a crime to lock in a profit later.  

Emerging markets have been savaged, especially the BRIC favourites. China alone is off 65 percent from its peak and valuations are accordingly more reasonable. China 's growth will slow in 2009 but is likely to exceed 7 percent whilst OECD members show zero economic growth. Value is obviously there.  

At the same time, those emerging markets, especially in Eastern Europe, such as the Baltics, Hungary and the Ukraine , that ran large current account deficits are in very real trouble and will be seeking assistance from the IMF. They have been decimated but do not have the resiliency of Asia .  

I have previously suggested that emerging markets in general be invested in through hedge funds or ETFs, which can be long or short. That advice remains valid although a more selective long bias is more justified now. There are special situations galore right now. It is even possible to get double digit dividend returns in selected blue chip companies in emerging markets. As Ronald Reagan said: if not now, when?

5/What is the outlook for gold and other precious metals?  

It can hardly come as a surprise that given the macroeconomic background I believe a position in gold absolutely must be retained, in fact, enhanced if at all possible. The sell off since August reflects the giant margin call that hedge funds have faced as banks are trying to reduce their loan books. There is a huge disconnect between the paper market in precious metals as represented by futures and the physical market as represented by coins and bullion. The latter has been on fire and physical is selling at a premium to the paper form.  

The US Government is up to its usual games making gold ownership more expensive by suspending the production of gold coins whilst, at the same time, debasing the dollar like never before. It is not beyond the realms of possibility that they will try and make ownership of gold by Americans illegal again in any future crisis. Would you rather own gold or the paper of a hugely indebted government whose budget deficit next year as a percent of GDP could get close to double digits?   Silver and platinum are even more depressed but both metals have some industrial uses which are less in demand under present circumstances. But they are cheap on both a relative and an absolute basis.  

6/Are there any other points that are not addressed in the above questions?  

Commodities, in general, have been hammered and in some cases, such as oil, are at a level close to the cost of finding and bringing new production on stream. They also have much better value than earlier this year as many of the leveraged speculators have been forced out.   Property in those countries that experienced the biggest booms: the US , UK , Ireland and Spain still has a way to go to reach the bottom. That may not happen till 2010 or even later. Whilst that situation endures the consumer will be under pressure to rebuild his balance sheet.

The pressure will have to be taken up by government investment in areas such as infrastructure and alternative energy as well as domestic demand in Asia , whose currencies should strengthen against their Western competitors.  

Much as we may regret it, the era of big Government is back. The ghost of Lord Keynes hovers over us and Milton Friedman, who died last year, must be weeping in his grave.  

By William R. Thomson
wrthomson@btconnect.com

  William Thomson is Chairman of Private Capital Ltd. in Hong Kong and an adviser to Axiom Funds and Finavestment Ltd. in London .

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.

William R. Thomson Archive

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


Comments

Susan Chan
10 Nov 08, 05:29
Keynes and 2008

If you want to understand the relevance of John Maynard Keynes to the present economic turmoil, it would be worth reading one of the biographies written about him by Donald Moggridge or Charles Hession or Robert Skidelsky, or Donald Markwell's book about him and international relations(economic and political, really), or maybe Hyman Minsky's 1975 study.


Post Comment

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