Prepare:Mobius Says Derivatives, Stimulus Will Trigger New Massive, Financial Crisis

Read this article. It's outstanding.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aaJY_J1100Yg

Mobius Says Derivatives, Stimulus Will Trigger a New Crisis
Share | Email | Print | A A A

By Bloomberg News

July 15 (Bloomberg) - A new financial crisis will develop from a failure to effectively regulate derivatives and the extra global liquidity from stimulus spending, Templeton Asset Management Ltd.’s Mark Mobius said.

“Political pressure from investment banks and all the people that make money in derivatives” will prevent adequate regulation, said Mobius, who oversees $25 billion as executive chairman of Templeton in Singapore. “Definitely we’re going to have another crisis coming down,” he said in a phone interview from Istanbul on July 13.

The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product. Opaque financial products contributed to almost $1.5 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg.

The U.S. Justice Department is investigating the market for credit-default swaps, Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks, said July 13.

Mobius didn’t explain what he thought was needed for effective regulation of derivatives, which are contracts used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather.

“Banks make so much money with these things that they don’t want transparency because the spreads are so generous when there’s no transparency,” he said.

Looming Crisis

A “very bad” crisis may emerge within five to seven years as stimulus money adds to financial volatility, Mobius said. Governments have pledged about $2 trillion in stimulus spending.

The Justice Department’s antitrust division sent civil investigative notices this month to banks that own London-based Markit to determine if they have unfair access to price information, according to three people familiar with the matter.

Treasury Secretary Timothy Geithner last week urged Congress to rein in the derivatives market with new U.S. laws that are “difficult to evade.” He said strong capital requirements were the key.

Geithner repeated President Barack Obama’s call to force “standardized” contracts onto exchanges or regulated trading platforms, and regulate all dealers.

The plan to regulate the derivatives market is part of a wider overhaul of financial industry rules meant to prevent any possibility of a repeat of last year, when the collapse of Lehman Brothers Holdings Inc. and American International Group Inc. froze credit markets and worsened the global recession.

U.K. Restrictions

In the Senate, Agriculture Committee Chairman Tom Harkin, an Iowa Democrat, is pushing for legislation that would require all over-the-counter derivatives trades be traded on regulated exchanges, not just standardized ones as the Obama administration is seeking.

U.K. banks will be forced to curb trading activity that helped cause the global financial crisis, Britain’s top financial regulator said last month, while stopping short of seeking to separate their lending and securities units.

Mobius also predicted a number of short, “dramatic” corrections in stock markets in the short term, saying that “a 15 to 20 percent correction is nothing when people are nervous.”

Emerging-market stocks “aren’t expensive” and will continue to climb, Mobius said. He said he favors commodities and companies such as London-based Anglo American Plc, which has interests in platinum, gold, diamonds, coal and base metals.

In China and India, Mobius sees value in consumer-oriented stocks and banks, he said.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net
Last Updated: July 15, 2009 01:08 EDT

 

That's pretty bullish.

 

It will.

Banks are effectively self-regulated and earn billions selling short premium on bets that never go south.

And if they do, they vote themselves a bailout via the FED (which they own), or the Treasury and Congress, which they own!!

Its Banker Fascism.

Wallstreet will channel all that liquidity to pump another asset class - probably food - reap insane commissions while commodities sky-rocket, then crash it, and reap Trillions more in Govt bailouts and legislative power!

It's Crisis Capitalism. Scare up legal monopolies by pumping and crashing markets.

 

mobius is a big name, but the problem is he has been wrong many time before just like other gurus. the performance of his mutual funds are not outstanding at all.

 

besides he 's always bullish on emerging,
he 's profiled in the german movie "let's make money", I didn't see the movie but in a preview he's heard saying "investors are not responsible for the acts of the company they invest in ".
I bet he's big on big polluters in emerging markers.

 

Don't forget the entities that short or naked short the industries / firms on the way down.

 

He sees value in Chinese banks, does he?