World market directions from Chris Lee
More along the lines of what I mentioned in last post... by Chris Lee.
The inevitable sharemarket shake-out, which will mean negative returns for most hedge and private equity funds, will not come as a result of the Chinese sharemarket falling.
For one thing China's sharemarket is largely irrelevant to the Chinese economy most of its real powerhouse companies being owned or controlled by government, and not listed.
Nor will the sharemarket shakeout be caused by the poor returns of leading world companies.
The shakeout is inevitable and will occur when the world reacts to the inevitable losses from those who have securitised debt, specifically sub-prime mortgages, and sold off this debt to banks and others.
In the US, the most over-borrowed place on earth, New Century either has filed, or is about to file for bankruptcy.
It has $16 billion lent in what is euphemistically called sub-prime home loans, and around $6 billion of its loans are in default.
It securitises its lending and sells them to others who fund them, one way or another, through retail investors.
New Century is the largest but only one of dozens of such lenders who, in our jargon, would be the South Auckland car lenders of this world.
The US sub-prime lenders are already in strife, and as they fold, several consequences are logical.
Forced house sales will rise; house prices fall; individual bankruptcies rise; investors cease to fund sub-prime lenders, all sub-prime lenders find it hard to fund their business; the public flee to quality; the second tier lenders cannot securitise their loans; as troubles spread, those who borrowed in low-cost currencies like yen, to invest in higher yield currences like AUD, South African rand, NZ dollar, or even US dollars, run for cover.
All of those currencies fall, except yen!
Over-borrowed people and companies and countries are paddle-less, up the creek.
Nothing changes an immutable fact; those who over-borrow lose their paddles sooner or later.
Those who lend to the over-borrowed make money only until the over-borrowed lose their paddles.
Moral to all of this; grandpa was right.
Debt-free is best!
Other moral to this story; the best banks and finance houses lend carefully and skilfully.
The inevitable sharemarket shake-out, which will mean negative returns for most hedge and private equity funds, will not come as a result of the Chinese sharemarket falling.
For one thing China's sharemarket is largely irrelevant to the Chinese economy most of its real powerhouse companies being owned or controlled by government, and not listed.
Nor will the sharemarket shakeout be caused by the poor returns of leading world companies.
The shakeout is inevitable and will occur when the world reacts to the inevitable losses from those who have securitised debt, specifically sub-prime mortgages, and sold off this debt to banks and others.
In the US, the most over-borrowed place on earth, New Century either has filed, or is about to file for bankruptcy.
It has $16 billion lent in what is euphemistically called sub-prime home loans, and around $6 billion of its loans are in default.
It securitises its lending and sells them to others who fund them, one way or another, through retail investors.
New Century is the largest but only one of dozens of such lenders who, in our jargon, would be the South Auckland car lenders of this world.
The US sub-prime lenders are already in strife, and as they fold, several consequences are logical.
Forced house sales will rise; house prices fall; individual bankruptcies rise; investors cease to fund sub-prime lenders, all sub-prime lenders find it hard to fund their business; the public flee to quality; the second tier lenders cannot securitise their loans; as troubles spread, those who borrowed in low-cost currencies like yen, to invest in higher yield currences like AUD, South African rand, NZ dollar, or even US dollars, run for cover.
All of those currencies fall, except yen!
Over-borrowed people and companies and countries are paddle-less, up the creek.
Nothing changes an immutable fact; those who over-borrow lose their paddles sooner or later.
Those who lend to the over-borrowed make money only until the over-borrowed lose their paddles.
Moral to all of this; grandpa was right.
Debt-free is best!
Other moral to this story; the best banks and finance houses lend carefully and skilfully.
posted by Prognosian | 10:06 am
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