A hazy state of affairs
August 15th 2007 07:55
It was consoling to read about the positive performance by some of Australia business icons in times of a gloomy sharemarket.
Commonwealth Bank, JB Hi-Fi, Reject Shop and James Hardie today posted positive earnings performance with some of them taking the opportunity projecting better growth in the future. Thumbs up, the market need some good news but it did not stop it from another round of plunge as the credit slump continue to spook investors.
The benchmark ASX S&P 200 index returned to another day of red by slashing 3% lower to a close of 5788 points. As there were good news, there were bad news as well resonated by the financials such as RAMS and Aussie Home Loans, the two non-bank lenders sounding the alarm that interest rates could be forced further up. Non-bank lenders are also in the spotlight for not being able to obtain loan rollovers from overseas as banks are cutting off the credit pipeline.
Everyday there are analysts and experts dishing out the market friendly-sounding 'strong economic fundamentals' for global growth and that everything will be normal as soon as the current credit slump is over. Yet as each day passed, there are more information released by the funds and banks detailing the scare and damage caused by holding the subprime MBS. As was noted in this website earlier, unless the full picture is known there won't be peace for the financial markets.
Some experts are particularly gloomy on the state of affairs such as the views of Nouriel Roubini who described the current global market turmoil is worse than 1998 LCTM crisis.
" Insolvency/credit crises lead to financial and economic distress – hard landing of economies – and cannot be resolved with liquidity injections by a lender of last resort. And now the vicious circle of a weakening US economy – with a housing recession getting worse and a fatigued consumer being at the tipping point - and a generalized credit crunch sharply has increased the probability that the US economy will experience a hard landing.
We are indeed at a "Minsky Moment" and this recent financial turmoil is the beginning of a much more serious and protracted US and global credit crunch."
The words above definately sound spooky but on a brighter note, there are views that Asia could be a safer habour for the time being, as reported by the Malaysian English-language daily, The Star.
"In general, global liquidity is still ample, underpinned by accommodative monetary conditions in the industrialised countries, continued accumulation of foreign reserves and current account surpluses in Asia, as well as the oil money boom.
So, would there be a contagion effect in Asia? The short answer, Lee said was “no”.
He said Asian's pool of liquidity remained abundant and the central banks had the “ammunition” to provide short-term liquidity if needed.
Asian banks, including large Japanese financial groups, have manageable exposure to subprime debt instruments. Corporations are also less dependent on risky capital inflows unlike in 1997.
Regional economies have also become more resilient to shocks, and their external vulnerabilities have been reduced.
“Once jitters are calmed, financial markets regained their composure and the contagion effect contained, confidence will return to pave way for a recovery in equity markets,'' the report said."
In the end, the question is whether the banks are overreacting or their credit limiting action a sign of more things to come? But the biggest question of all is this a self generating prophecy?
Always expect the unexpected.
Commonwealth Bank, JB Hi-Fi, Reject Shop and James Hardie today posted positive earnings performance with some of them taking the opportunity projecting better growth in the future. Thumbs up, the market need some good news but it did not stop it from another round of plunge as the credit slump continue to spook investors.
The benchmark ASX S&P 200 index returned to another day of red by slashing 3% lower to a close of 5788 points. As there were good news, there were bad news as well resonated by the financials such as RAMS and Aussie Home Loans, the two non-bank lenders sounding the alarm that interest rates could be forced further up. Non-bank lenders are also in the spotlight for not being able to obtain loan rollovers from overseas as banks are cutting off the credit pipeline.
Everyday there are analysts and experts dishing out the market friendly-sounding 'strong economic fundamentals' for global growth and that everything will be normal as soon as the current credit slump is over. Yet as each day passed, there are more information released by the funds and banks detailing the scare and damage caused by holding the subprime MBS. As was noted in this website earlier, unless the full picture is known there won't be peace for the financial markets.
Some experts are particularly gloomy on the state of affairs such as the views of Nouriel Roubini who described the current global market turmoil is worse than 1998 LCTM crisis.
" Insolvency/credit crises lead to financial and economic distress – hard landing of economies – and cannot be resolved with liquidity injections by a lender of last resort. And now the vicious circle of a weakening US economy – with a housing recession getting worse and a fatigued consumer being at the tipping point - and a generalized credit crunch sharply has increased the probability that the US economy will experience a hard landing.
We are indeed at a "Minsky Moment" and this recent financial turmoil is the beginning of a much more serious and protracted US and global credit crunch."
The words above definately sound spooky but on a brighter note, there are views that Asia could be a safer habour for the time being, as reported by the Malaysian English-language daily, The Star.
"In general, global liquidity is still ample, underpinned by accommodative monetary conditions in the industrialised countries, continued accumulation of foreign reserves and current account surpluses in Asia, as well as the oil money boom.
So, would there be a contagion effect in Asia? The short answer, Lee said was “no”.
He said Asian's pool of liquidity remained abundant and the central banks had the “ammunition” to provide short-term liquidity if needed.
Asian banks, including large Japanese financial groups, have manageable exposure to subprime debt instruments. Corporations are also less dependent on risky capital inflows unlike in 1997.
Regional economies have also become more resilient to shocks, and their external vulnerabilities have been reduced.
“Once jitters are calmed, financial markets regained their composure and the contagion effect contained, confidence will return to pave way for a recovery in equity markets,'' the report said."
In the end, the question is whether the banks are overreacting or their credit limiting action a sign of more things to come? But the biggest question of all is this a self generating prophecy?
Always expect the unexpected.
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