Agree with Jim. Something will crack and the house of cards will crash. I think the crack will surface in either Japan or China. But we could be years away.
I agree with your opinion of the Asian source of the blow up...1) China has been saying that there is a bubble in their markets due to over investment, no risk reward examination only belief of reward by investors. The Great Chinese bank sale has me a little scared too. I made a ton in Chinese stocks last year but didn't touch those banks. Spent a lot of time in China and dont believe what they were saying about their financial health. 2) Japan is really in great financial shape in terms of low corporate debt, low inflation, low unemployment etc. However I think that something like a bird flu could hit the wealthy aging population and cause some big problems, or the Tokyo earthquake that has been forecast for so long may just happen at anytime. This would fu__ up the financial markets in Japan and around the world. Of course there could always be an American LTCM or the like that does it.
Yes I think so. Look for widening credit spreads and CDO prices. All asset classes will suffer as liquidity will be withdrawn across the board though I think that the US$ will show some strength as the carry trade comes off and money comes home to coever margins and flees from EM. When the dust settles it will be time to buy gold with (which will have corrected along with everything else) with your strong US$ before it weakens from the inevitable attempts at reflating the economy. I also think that if (and I still think it is IF not when) this scenario plays out then it will take a collaborative effort from the ECB and the FED to calm things which will probably mean that thinsg will be allowed to get pretty bad before they will be able to agree to act in concert. When things start moving in the bond markets it may be a matter of weeks or maybe even days before the more visible markets are affected. Until then probably nothing to worry about except maybe the USD/YEN rate.
This is nothing new and is indicative of the increasingly poor attitude toward risk that is present in the market. Everyone is guilty, retail investors, institutional investors and hedge funds. It is a product of a very competitive system awash with cash. It is obvious in stock valuations, option volatility and credit spreads. The markets will continue to weaken risk-taking standards until there is a major systemic disaster and then the cycle will repeat. It's musical chairs and the music will stop. When is the question and are you rich enough yet to get off the merry-go-round?
I beg to differ. What is new, and indeed new in 2006 is that the risk of default has been covered more cheaply than at any time in history and at a1/4 of the price of risk just a few years ago. What is also new is that the equity that stands behind these default guarantees is at the lowest level in history. Also new for 2006 is that some of the weakest market players stood up to take on the largest risk for the lowest premiums in history.
Last year it was a record too. The year before it was a record too, etc. etc. Next year it will be another new record?
EM's have traded through corporates for the 1st time in history. Does that raise an eyebrow or is that nothing new also. Maybe when corporates trade through treasuries that will qualify?
The nice thing about the market is that it's a place where you get rewarded for casting a correct vote about the future. If you believe what you say so strongly, then just short credits up the wazoo. You don't need anyones applause and approval, just back up the truck when you're done.