Subprime Overdose
August 14th 2007 10:11
Is there really nothing else worthy of a strong focus other than the current credit worries? No doubt that the US subprime fallout is a major concern but there are issues that are of equal importance.
The current volatility in the market is under the dictation of the credit crunch which although seems substantial but how many stocks in the world are directly affected by it? Not to mention that the subprime fallout constitute a minor section of the US credit market, otherwise the growth fundamentals are relatively strong.
Tell that to the market.
Any piece of information concerning anything "subprime" will create actions so much so that it seems the correlation of the price movement and subprime news equate to 1.
Australian shares benchmark S&P ASX 200 index on Tuesday shaved 46.8 points to 5964.8 points at closing on the back of negative credit news.
A better understanding of the current market panic is best captured by Alan Boyd, who describes the current situation a function of a mysterious herd mentality.
"Securities brokers put it down to a fear of the unknown: Who is absorbing the losses and how much are they? What impact will the cleanup have on global interest rates? And how will monetary chiefs react, given that they are already dampening down liquidity at every opportunity?
Then there is the confidence factor. A mysterious herd mentality emerges during trading volatility that encourages investors to view all markets as suspect, curbing lending and eroding consumption to the point where the economic outlook is affected and even good loans begin to turn bad.
This isn't going to be a long process: reports from the US housing belt suggest that subprime pressures will peak in October and the whole mess will probably be cleared away by the end of the year.
But in the meantime, some equity markets will suffer more than others, especially if structural stresses emerge. Economies most at risk are those with large external debts, especially current-account deficits, and that have only modest foreign reserves to cover this exposure."
Any investor who is also a soccer fan will relate to the current market to an on-going but goaless game with the attention mainly on the midfield. It is just boring but the game will end anyhow.
The current volatility in the market is under the dictation of the credit crunch which although seems substantial but how many stocks in the world are directly affected by it? Not to mention that the subprime fallout constitute a minor section of the US credit market, otherwise the growth fundamentals are relatively strong.
Tell that to the market.
Any piece of information concerning anything "subprime" will create actions so much so that it seems the correlation of the price movement and subprime news equate to 1.
Australian shares benchmark S&P ASX 200 index on Tuesday shaved 46.8 points to 5964.8 points at closing on the back of negative credit news.
A better understanding of the current market panic is best captured by Alan Boyd, who describes the current situation a function of a mysterious herd mentality.
"Securities brokers put it down to a fear of the unknown: Who is absorbing the losses and how much are they? What impact will the cleanup have on global interest rates? And how will monetary chiefs react, given that they are already dampening down liquidity at every opportunity?
Then there is the confidence factor. A mysterious herd mentality emerges during trading volatility that encourages investors to view all markets as suspect, curbing lending and eroding consumption to the point where the economic outlook is affected and even good loans begin to turn bad.
This isn't going to be a long process: reports from the US housing belt suggest that subprime pressures will peak in October and the whole mess will probably be cleared away by the end of the year.
But in the meantime, some equity markets will suffer more than others, especially if structural stresses emerge. Economies most at risk are those with large external debts, especially current-account deficits, and that have only modest foreign reserves to cover this exposure."
Any investor who is also a soccer fan will relate to the current market to an on-going but goaless game with the attention mainly on the midfield. It is just boring but the game will end anyhow.
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