CC News 3-1-2007

[Sapiens]

Be Very Scared

http://www.forbes.com/2007/02/28/mar...ml&partner=rss

With investors so skittish, one big danger is that a prolonged market drop will quickly set off a credit crunch, as yesterday's flight to treasuries presaged. A credit tightening, in turn, could cause a jump in junk bond and other defaults, a plunge in M&A activity and a surge in corporate and personal bankruptcies.

[Sapiens]

Investors: Still Shaken: Market rebounds modestly

http://www.tulsaworld.com/BusinessSt..._E1_Marke12179

Russell said he thinks there are going to be more days like Tuesday.

"I don't think this is over," he said. "As investors come to grips with the extent of the overconsumption of credit and the risk that that overconsumption poses, they will continue to assess their positions in stocks, and continue to sell.

"The markets are going to survive, but it's going to be a few weeks of discomfort."

No one can predict what the market is going to do, said Aaron Clark, vice president and director of research for Paragon Financial Group in Tulsa.

"As a general rule, the more steeply the market rises, and the longer the duration between selloffs, the increased likelihood of a more vicious correction," he said.

With an uptick in inflation or a deeper contraction in corporate earnings, the market could easily depress another 3 percent to 5 percent or more, depending on how bad those indicators are, Clark said.

[Sapiens]

Waiting for the Global Financial Drama

http://asiasentinel.com/index.php?op...=404&Itemid=32

The two-day global equities market meltdown may well signal a much bigger future disaster



The script is complete. The dress rehearsal has been held. But the curtain has yet to go up on the first night of the Great Global Asset Price Collapse.

Markets have recovered some composure after the last two days of February. The steep drops can now be described as a correction, not a collapse. But the payback from sustained overindulgence still awaits. That is not to argue that every index from Dow Jones to Topix via silver futures and Singapore property is going to suffer the same fate. There are elements of the local as well as the global in every national market. But make no mistake: the global liquidity bonanza is the pre-condition for almost every asset market excess.

...

The first is the US consumer. Has the bonanza of the real estate cash-out come to an end? House prices have finally begun to slip and interest rates show no signs of falling – though real rates remain well below historical norms. Companies in the US, as almost everywhere, are cash-rich but showing little desire to increase investment – and household incomes are barely rising faster than inflation. Two things will happen when the US consumer-led boom stalls. Most obviously, imports will tend to fall, with a consequent knock-on effect for Asian exporters, China more than most because of the Chinese economy’s exposure to US-bound exports. Contrary to some current belief, it will not be question of the world catching cold when China sneezes, but of China catching a cold from the US.

[Sapiens]

Tuesday's Market Meltdown; Greenspan's "invisible hand"

http://www.atlanticfreepress.com/content/view/1070/81/

Yesterday, the Chinese got whacked with their own stick. By keeping the value of their currency down, they spawned a wave of speculation which inflated their stock market by 140% in one year. When the government threatened to tighten up interest rates the stock market went into a nosedive and the overall index got a 9% haircut in a matter of hours. If they had been playing by the “free market” rules, rather than pegging their currency to artificially cheap greenbacks they could have avoided inflating their stock market.
...

On Monday, the National Association of Realtors (NAR) reported a 3% jump in the sales of existing homes, but it was all hogwash. The housing industry has joined the media in trying to conceal what’s really going on by showering the public with cheery talk of a recovery. Don’t believe it. Go to their website and you’ll see that “year over year” January sales were down by a whopping 290,000 homes. Add that tidbit to “new home sales” (announced today) which “fell by 16.6%, the most since 1994” (Bloomberg) and you get bird’s-eye-view of an industry teetering on the brink of collapse.
...

The real problem is deep, systemic and difficult to understand. It relates to basic monetary policy which has been tragically mishandled by the Federal Reserve. A healthy economy requires that money supply not exceed the growth of real GDP; otherwise inflation will ensue. The Fed has been cranking up the money supply at a rate of over 11% for the last 6 years ensuring that we will eventually face a cycle of agonizing hyper-inflation.
...

“Excessive leverage: The amount of credit that lenders are willing to extend on private equity transactions has risen substantially. This lending may not, in some circumstances, be entirely prudent. Given current levels and recent developments in the economic/credit cycle, the default of a large private equity backed company or a cluster of smaller private equity backed companies seems inevitable. This has negative implications for lenders, purchasers of the debt, orderly markets and conceivably, in extreme circumstances, financial stability and elements of the UK economy.”

The problem is even worse in the US where personal and mortgage debt has increased by over $7 trillion in the last 6 years! This is not an issue that can be resolved by a meager 10% correction in the stock market. The reaction on Wall Street tothe sudden downturnin China demonstrates the fragility of the market and presages greater volatility and retrenchment.

[Emphasis-Sapiens]