Can banks continue to be trusted?
Indeed, today’s events have been an exciting experience for international markets. As I write this, China’s Central Banks have just cut their key interest rate again by 27 basis points to stimulate growth, Lehman (est. 1844) has filed for Chapter 11 (Bankruptcy), there are rounds in which the ECB has an emergency rate cut, UBS sneaks in to declare another $ 5 billion in write-offs, AIG seeks help from the Fed with a request for a $ 40 billion bridge loan after rejecting an offer from Flower to avoid joining the slaughterhouse where its CDs are currently running low, and it seems the only good news is probably that Merril merged with BOA, as well as that a consortium of global banks has created a $ 70 billion fund to facilitate liquidity and an orderly resolution between Lehman and its counterparts. The ECB also joined in with $ 30 billion to curb liquidity problems.
In my opinion, it seems like an obvious trend for all Fed governors to be challenged by the markets whenever the president warms up in the seat, where the Federal Reserve at this point in history chose to avoid providing support for Lehman, as That could cost the president seriously. federal government to be in a financial position, after nationalizing Freddie Mac and Fannie Mae. If the Federal Reserve is going to continue to acquire AIG from the private sector and turn them into a public sector asset, it may be worth wanting to rethink the credit rating of US Treasuries, as many investors may consider the likely high. risk in tenure. to US Treasuries, that a stronger dollar may be just the remaining tool to keep Treasuries attractive. With reference to the article written by Morgan Stanley, where they quoted from Japan and Germany in the 90s, that the explosion of the debt of both governments was followed by a spike and then a decrease in the indebtedness of private households, and with the expansion. The balance of the public sector was reflected in a contraction in the balance of the private sector (always in relation to GDP).
The event consortium has really challenged the belief of many wealthy investors and central banks today to rethink the safety of their funds with their investment banks (where Lehman is larger than Bear Stearns) and to use leverage for their models. creative business. . These institutions tend to face more vulnerabilities, 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 customers to operate. In my opinion, if the economy is going to reinvent the banking system, it may also seem that the huge bonuses given to the CEOs of investment banks may be forgotten for a time, until people forget what happened in 2008.
In my view, the effect of the liquidation of these troubled institutions may also slowly creep into consumers, businesses, and net exporters from the US to the US in the coming months, where it may continue to hurt smaller institutions, homeowners, other governments, pension / welfare / education funds, and corporations that have done business with these companies.
So instead of the current jittery sentiment, where consumption and the labor market are affected by the slowdown, credit availability remains low, Europe and Japan in recession, and emerging markets are struggling to cope with shocks. inflated prices of goods for more than 30 years. the last few months, where are the opportunities?
Considering the events and sadness of the current market situation, we are inevitably experiencing one of the most interesting challenges in human history, which is an asset bubble that turned into a credit crisis that will continue to challenge the ‘pipeline. ‘monetary for a while.
First, as a personal preference, I will stay away from stocks in general, although Asia may seem like a safer haven for investing in stocks, but no matter how, as long as there is uncertainty, these instruments should be left alone. Second, keep a close eye on central banks and currencies in both the UK and the European region, where logic says we should soon hear some countercyclical (rate cut) monetary policies from them. Lastly, we may also start to see lower prices on commodities in general, as the world’s largest consumer may have to cut back on their overall spending on goods and services, as well as their gross net worth.
In my next post, I will discuss which specific markets I would trade in and where my preferred entry levels would be.