Why does it feel like an economic repeat of mid 2008? Because the global economy is now showing hallmarks of the return to similar peak inflation (for that period in July-November 2008) before the bust. All this mixed with a very weak and smashed global economy in 2009. So the repeat of 2008 inflation highs is now being reflected in equity markets and commodity markets which are now all in bubble territories. 2008 is a year that stands as the decline in global economies, as opposed to 2009 where the global economies are fragile and distorted from Government intervention. Which of course has caused price fluctuation's in depressed economic environments, namely industrial output in Asia, Eurozone and the US increasing but private investment almost non existent.
The 2008 inflation scenario (price inflation namely on oil and commodities) lead into the massive sell off of equities and the consumer markets plummeting due to restrictive credit conditions. The question is, are we now entering into a mini bust scenario particularly some stocks, commodities and bank write downs . In which inflation is a precursor to risk aversion again? The answer is a very close possibility. The Commercial Mortgage backed securities market (CMBS) is looking dangerous, government bond yields are edging higher, thus effecting mortgage rates. So further falls in the mortgage sector in the US cannot be ruled out, which in turn will effect banks and overall credit conditions The markets have regained risk appetite in an overdone way; stocks, some currencies and commodities are now looking at peaking out.
As discussed in The US Dollar and Gold showing a reflected 'crossover' patten., the reflective gold/USD patten prior to the global economy sinking in August/September 2008. Showed the inflation conditions that caused gold to spike to $1007 on the 10th March 2008 and the US dollar to fall further (70 cents 17th March 2008), then reversed as risk aversion kicked in and the USD was bought (re: the equity sell off's towards the end of 2008). This could happen again if a correction is on the way, as discussed in this post we appear to be heading that way. A correction in both stocks and commodities (including gold) could occur at some point in 2009 and it will be a meaningful correction.
China and Japan are currently encouraging lending and speculation from their stimulus injections and government intervention will at some point have a banking problem not dissimilar to the US. I would say this is on the cards either towards the end of 2009 or mid 2010
Banks generally will start to lift interest rates on Mortgages to reflect rising global/US Treasury yields in the US.
No comments:
Post a Comment