The chain of events that led to the Great Depression were extremely similar to the ones that led to the ‘lost decade’ in Japan. Firstly loose monetary and fiscal policy led to real estate and stock market bubbles. Then the bubbles popped, which resulted in a sharp fall in demand for housing (and a fall in housing investment), bank failure (since the banks had become reliant on asset prices risi…
Read the articleInvestors are almost becoming blasé to dire US housing market data releases, but the reality is that things are getting worse and worse.
The monthly S&P/Case-Shiller figures that came out on Tuesday showed that the US housing market downturn is now more severe than the one that led to the US recession in 1991. As the chart shows, the S&P/Case-Shiller Index Composite-10 Index fell by 9.8% in th…
Porsche is beating the banks at their own game. In the ‘go-go’ pre-credit crunch days, the banks gave Porsche an overdraft facility, whereby Porsche had the option to borrow €10bn at a cost of only 0.2% over LIBOR. The banks will now be regretting that they’d offered this credit facility.
Even though we are now in a full-blown credit crunch, Porsche is still able to borrow from the banks at 0.2…
Read the articleEmerging market sovereign bonds have had a fantastic run. Since the beginning of 2003, Russian government bonds have returned 78%, while Brazil has returned 172%. Ecuadorian government bonds have returned a massive 253%. But we’re not interested in historical returns, we’re bothered about future returns. Are emerging market bonds good value now?
This chart shows the spread (ie the excess yield…
First Man Utd drops points to Arsenal, and then Man U’s shirt sponsor AIG admits that losses on credit derivatives were $4.88bn in October and November, four times worse than the company had previously stated. AIG’s auditor, PricewaterhouseCoopers, found “material weakness” in AIG’s accounting treatment of credit derivatives. AIG’s shares fell by 12% on Monday, the biggest one day fall in the c…
Read the articleAfter a few teething problems, it’s not contentious to say that the euro has been a success. Helped by the US dollar’s demise, the euro is gradually becoming a rival as the reserve currency of choice for central banks. European unemployment has plummeted, and the European economy probably grew at around 3% last year. Some countries have boomed – Spanish economic growth has averaged about 4% ove…
Read the articleI enjoyed this article, entitled “The Last Asset Bubble“.
US treasuries have enjoyed an incredible rally, returning 11.2% since the end of June. This has been driven by the sub-prime debacle and the Fed’s decision to cut rates from 5.25% to 3%.
Treasuries have also been supported by panicked investors fleeing from other AAA asset classes that are no longer AAA in any real sense of the word. The…
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