10/09/2008

The Vulture in the Coal Mine

Noriel Roubini, a very well respected guy in all things financial and who correctly called this meltdown has a long piece here which may be subscription only. A few excerpts:

The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity were excessive leveraging and bubbles were not limited to housing in the US but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.

And in a world where there is a glut and excess capacity of goods while aggregate demand is falling soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.
At this point the risk of an imminent stock market crack – like the one-day collapse of 20% plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.
I know, scary shit. And this guy has been right like forever.

1 comment:

Doug_S said...

My investment advisor, a professional who constantly stated as a categorical imperative that one cannot time the market or even hopr to time the market, sent an email saying he was going to very slightly sell equities and go to safe investments.

That is near capitulation. He knows full well if he gets out tomorrow he will never know when to get back in until after the major up moves.

Man people are afraid. I smell the ability to make money or world socialism.