Today’s events have indeed been an exciting experience for the international markets. As of this writing, China’s central banks have just cut its key interest rate again by 27 basis points to stimulate growth, Lehman (1844 est.) Has filed for Chapter 11 (bankruptcy). ), there are series of ECBs having emergency rate cut, UBS sneaks in to declare an additional $ 5bn in write-downs, AIG seeks help from the Fed with a request for a bridging loan of $ 40bn after rejecting an offer from Flower to keep themselves from joining the slaughterhouse where their CDs are currently gaping, and it looks like the only good news is probably that Merril has merged with BOA, as well as a consortium of global banks have put in invests a $ 70 billion fund to facilitate liquidity and orderly resolution between Lehman and their counterparts. The ECB has also joined in $ 30 billion to reduce liquidity problems.
In my opinion, it seems like an obvious trend that all Fed Governors are challenged by the markets whenever the President warms up in the seat, which the Federal Reserve at this point in history has chosen to avoid. support Lehman as it could seriously cost the federal government to be in a financial position, after nationalizing Freddie Mac and Fannie Mae. If the Federal Reserve is to continue to take AIG out of the private sector and make it a public sector asset, it may be worth rethinking the credit rating of U.S. Treasuries, as many investors may consider the likely high risk of holding on US Treasuries, for which the strengthening dollar is perhaps just the remaining tool to keep Treasuries attractive. Referring to the article written by Morgan Stanley, where they cited Japan and Germany in the 1990s, that the explosion in the debt of the two governments was followed by a peak and then a decline in the debt of private households, and with the expansion of the balance sheet of the public sector was reflected in a contraction of the balance sheet of the private sector (still in relation to GDP).
The consortium of events really questioned the belief of many high net worth investors and central banks today to rethink the safety of their funds with their investment banks (where Lehman is taller than Bear Stearns) and the use of leverage for their creative business models. . These institutions tend to be more vulnerable as they rely heavily on short- and medium-term money market instruments to maintain their operations, compared to commercial banks such as JPM and BOA, where they rely more on deposits made by their clients to operate. . In my opinion, if the economy is to reinvent the banking system, it can also seem like the huge bonuses given to CEOs of investment banks can be forgotten for a while, until people can forget what’s going on. ‘happened in 2008.
In my opinion, the effect of the liquidation of these troubled institutions could also slowly creep on American consumers, businesses and net exporters to the United States over the coming months, where it could continue to hurt small businesses. institutions, home owners, other governments, pension plans / social assistance / education funds and companies that have collaborated in business with these companies.
Thus, replacing the current feeling of nervousness, where consumption and the labor market are affected by the slowdown, the availability of credit remaining low, Europe and Japan in recession, and emerging markets having difficulties to cope at inflated prices of goods in recent months, where are the opportunities?
Given the events and the gloom of the current market situation, we inevitably face one of the most interesting challenges in human history, namely an asset bubble that has turned into a credit crunch that will continue to challenge the monetary “pipeline” for some time.
First, on a personal level, I will stay away from equities in general, although Asia may seem like a safer haven for equity investments, but no matter how, as long as there is uncertainty. , these instruments should be left out. Second, keep a close watch on central banks and currencies in the UK and the European region, where logic says we should soon hear countercyclical (rate cut) monetary policies from them. Finally, we might also start to see a drop in commodity prices, as the world’s largest consumer may have to reduce their general spending on goods and services, as well as their gross net worth.
In my next article, I’ll take a look at the specific markets I would trade in and where my preferred entry levels would be.