Global Credit Crunch?
Surprisingly strong words out of Merrill:
"Merrill Lynch has warned of a global credit crunch as central banks in Europe and Asia tighten monetary policy, advising clients to shun risk and switch to safer assets over the forthcoming months.
Presenting its strategy for 2007, the US bank said the world boom is clearly giving way to a slowdown that will shake up markets and punish smaller equities, industrial metals, and lower-tier assets of almost every kind.
Money can still be made as the cycle turns, chiefly by rotating into short-term cash deposits and quality stocks with good dividend yields such as AstraZeneca, Barratt Developments, Sweden's retailer H&M, or Spain's Banco Popular Espanol - along with a few bars of gold bullion.
The bank said 2007 would be the "year of the dividend", with fear returning as the VIX and VDAX volatility indexes - widely used in option trading - rise from record lows."
One rarely sees such a clearcut warnings from a major asset gatherer . . .
Source:
Merrill sounds alarm on global liquidity
Ambrose Evans-Pritchard, International Business Editor
Telegraph UK 1:22am GMT 06/02/2007
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/02/06/cnmerr06.xml
Wednesday, February 07, 2007 | 10:30 AM | Permalink
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"One rarely sees such a clearcut warnings from a major asset gatherer . . ."
With all due respect, read any of Rich Bernstein's comments over the last 6 years. He was looking for financial Armegeddon.
Posted by: Fred | Feb 7, 2007 10:54:53 AM
The more bearish calls like this from the big firms, the longer it makes me think this rally can go on.
It's almost frightening how similar almost every country's index chart looks - from India and Tokyo to Germany and France to the US...
Posted by: Michael C. | Feb 7, 2007 11:15:24 AM
The link in your references is broken.
Posted by: MAS (San Diego) | Feb 7, 2007 11:19:44 AM
In fairness, Merrill's isn't really a major asset gatherer any more. Now if BlackRock issues a commentary like this....
Posted by: Macro Man | Feb 7, 2007 11:47:48 AM
"The more bearish calls like this from the big firms, the longer it makes me think this rally can go on."
Not to worry, Michael. As Fred mentioned, Bernstein is a permabear, so this doesn't mark any major shift in sentiment.
Posted by: winjr | Feb 7, 2007 12:16:56 PM
Interest rates for home loans and cars in India have soared to 11.75% and 14% respectively in the past few months..
Meanwhile, Indian risk-free CDs can fetch a handsome 9% in interest. There is something to be said for cash is king, atleast in India.
~~~
BR: Risk free 9%? I doubt it.
At the very least, overseas investors have currency risk; Then there is the risk of bank failure.
Posted by: snoopy | Feb 7, 2007 12:58:50 PM
I agree, the cycle really only happens seriously and we only see boom/bust when the major players move to one side of the boat.
The more rational and cautious the are, the smoother things should be. I had been getting concerend by all the bullish sentiment in january, but when I see this sort of thing I get less concerned.
Posted by: blaze@blaze.com | Feb 7, 2007 1:02:59 PM
Oh Barry, Don't you know?
It's different THIS time. And India? Isn't India way the hell over on the other side of the world? How could they affect us? 14%? THAT can't happen here! Ask Kudlow! That's just some permabear journalist/bank/small company Goldilocks mauling BS. Clearly there is no end to the liquidity. We will simply go on forever on seas of liquidity driven profits and happiness. Icebergs? Why worry, this economy is unsinkable.
Posted by: Craig | Feb 7, 2007 1:40:26 PM
Quit yacking and place yer bets!
Posted by: Fred | Feb 7, 2007 1:56:40 PM
Had to give up my yaking. Couldn't afford to feed the hairy beasts!
Posted by: lurker | Feb 7, 2007 2:16:36 PM
Regarding excess liquidity, Vietnam's stock market has appreciated 100% in 3 months and 45% just since the beginning of the year.
http://www.bloomberg.com/apps/cbuilder?ticker1=VNINDEX:IND
Stories about people borrowing money to flip stock and get rich are not confined to Chinese communists. The Vietnamese communists have caught on quite well.
That liquidity stuff everyone keeps talking about is some magical shit. I need to get me some.
Posted by: S | Feb 7, 2007 2:20:39 PM
Typical Merill econo-garbage. The world continues to be awash in liquidity and as long as it doesn't manifest into inflation, it can continue for longer than Richard Bernstein can keep his job.
This rally has way more to go.
Hey Merill Lynch, give me a call, I'll actually provide you guys some accurate insight.
Posted by: hedgefundanalyst | Feb 7, 2007 3:24:57 PM
Central Banks (with rare exceptions) are raising rates, however they are also growing their money supplies rapidly. I have no idea why Merrill is stating one without the other. The world is awash with paper money.
Posted by: OCDEVIL | Feb 7, 2007 5:12:09 PM
The market will apparently never go down again. 8 days without any kind of downside...
Dow 13000 or 14000 next????
There is no bad news anywhere..... this is really amusing....
Posted by: Andrew | Feb 7, 2007 5:48:06 PM
unless you count those Iranian missile tests across the Straits of Hormuz.... and the fact that the Russians supplied them against our objections while the Chinese are popping satellites out of lower space... hmmm, sounds like an Entente
Posted by: scorpio | Feb 7, 2007 7:08:34 PM
Interest rates for home loans and cars in India have soared to 11.75% and 14% respectively in the past few months..
Meanwhile, Indian risk-free CDs can fetch a handsome 9% in interest. There is something to be said for cash is king, atleast in India.
~~~
BR: Risk free 9%? I doubt it.
At the very least, overseas investors have currency risk; Then there is the risk of bank failure.
~~~
ICICI bank (India's largest private bank) is offering a 9% CD for 3 years.
http://www.icicibank.com/Pfsuser/icicibank/ibank-nri/nrinewversion/int_rates.htm
There is of course the currency risk - although the Rupee has only been appreciating against the dollar in recent months, going up with the Sensex.
This rate is only for Indian residents, but I use it as an example to illustrate that cash has become somewhat more valuable in recent times.
Posted by: snoopy | Feb 8, 2007 12:37:28 AM
I'm not sure this post is very useful. This what a lot of people have been saying since early 2006.
So which is better? To be right? Or to make money? Because apparently you can't have both!
Posted by: Ryan | Feb 8, 2007 10:13:37 AM
Well, isn't that ironic. Charles Edward Merrill issued a dire warning in 1929 and noooooobody listened.
"The world is awash in liquidity." Yes indeed. Dumbasses of every ilk driving asset values to never seen and unsustainable levels. But, as John Galbraith said, don't confuse those who are around money with brilliance. ie, Wall Street. Wall Street is always wrong...eventually. Or, as Jimmy Rogers just said, there aren't that many smart 29 year olds.
I wonder if there is a fly in that global liquidity argument? Maybe like, how many consumers are awash in liquidity? Tick tock.
Posted by: BDG123 | Feb 8, 2007 2:02:43 PM
Beware the Black Swan. Real life is more dangerous than Russian Roulette
Posted by: Jack Jones | Feb 9, 2007 3:08:47 PM
I had forgotten about Talebs' black swans, good reminder. This is going to end badly..
Posted by: Antoine | Feb 11, 2007 3:20:21 PM
8% in Oz: http://www.bankwest.com.au/regularsaver/index.asp
Comments?
Posted by: Ray | Aug 10, 2007 8:18:01 PM
