• Home
• About
• SiteMap

Some months ago, I wrote an "authorized Article (published on this site); An Economy" Sub-Main, and urge anyone who read the following to revisit this material, both to see what was wrong in this respect that that what was right. In it, I predicted that priming for financial difficulty would come alternately one or the other in the form of an economy overheating, which would have led on interest rates and ending the era of easy money, the spingente marginal holdings above the reef, or that a weakening of the samples would close up providers, dying of hunger weak companies blocking their liquid capital resource and increasing business failures. I was wrong. While even the must chronically optimistic certainly hour admits that there is a problem in capital markets and, in fact, was overthrown above on the ordinary shares, the fuse was lit or not through the phenomena described, but rather, the proverbial tail of œ of the â € which has ravaged the € of the dog.â that while the fundamentals of the global € â € of the Economyâ of the œ of the â € more about that "of the € belowâ phrase trita remain strong, threaten to be undermined by a lack of access to accreditation, up to now provided by the fund run by alternative and confidential sources of equity, with ponds seemingly endless easy money seeking a home. It may be only a few weeks ago what the girls pon pon indomitable for markets (who, by some magical coincidence, are geralmente, individuals engaged in trade sales of securities) were telling us that we should not be afraid, because the world was œ â € of the flooded in oceans of liquidity? of the â € of hours, central banks almost universally is intervening twenty-four hours a day to provide the necessary liquidity to markets credit. With regard to this author, I thought that could see the worm turn around two weeks ago when, faced with tremendous volatility (and rather frightening) in both directions, the people at Goldman Sachs have trottato outside Abby Joseph Cohen to tell us that the bull was alive and well, thanks a lot. I had forgotten about Abby Joseph Cohen and last ricordila tell us in March 2000 (the last cheers for the Internet bubble) that, well, the bull was alive and well. The l $ Mrs. Cohen has, to the best of my knowledge, not ever publicly suggested that the market could (breath!) Go down. Further evidence of a change nell'umore can be found by anyone who is an observer normal CNBC. They are gone most of smiles, jokes and general bonhomie that could always be found when the expectations were of a market infinite increase. He went that "most annoying; cowbell" has ringing signal to CNBC to announce the entire announcement of note in world affairs. And even if the CNBC is supposed to be a news source market and business, all the viewer of its normal programming can have no doubt about the inherent love for bulls and bears aversion produced by its talent dell'su – air. After all, just because the sellers of securities they want to believe that markets always go up, producers of € ™ s of CNBCâ understand well that broad, general interest in the markets (and therefore higher ratings) increases dramatically when markets are increasing. But today, the host of CNBC described before the U.S. markets opened for trade are no exception Wilbur Ross, the undisputed dean of sorrow. Wilbur is an icon in the world of bankruptcy / restructuring / return and, speaking to me (I spent 25 years in this field), readily acknowledge that Wilbur probably has forgotten more about this subject that I never know. But his comments sull'agitazione current in the markets were considerably shorter and simpler. He noted that the œ for the past two years, consumers of the â € has spent more than they earned and the government has spent more than earned (sic) of which €.  stated the obvious: that such a situation can not continue indefinitely. He attributed some of the recent difficulties to what he called the two most dangerous words in English: financial engineering of œ of the â €, â € of which, according to Ross means that the œ of the â € someone has calculated out of a sense lower prices of the Ross of € risk.â has noticed that many people had counted fully and to their detriment, on the agencies and evaluations on products bought that were intended to sell a rate unaware of the risk of œ €, â € of the second return.â of him, such a œ, â € the practice always has a defect of € of end.â However, suppliers of profits promised undoubtedly continue to tell us that this is a signal return of pure œ â € on the radar screen of the â € and that the overall € of Economyâ of the â € œ indestructible, retain the day. If one has a memory that again reaches the first of yesterday afternoon (not this figure in an industry of which of the captainsâ of € œ of the € â € is often of the twenty-somethingsâ of œ of the â €) one could easily replace the global € of Economyâ of œ of the â € words to the € œ of Economyâ of the â € of the new words that was so prevalent during the Internet bubble. It could also easily rend contoere that the flow recent and voluminous private equity deals, where funds are buying public companies and their finances aquisizioni or loans with low cost or capital's assets provided by the target is (not-so) of an unknown rievocativo purchase by the salaried delayed ™ s 1980â €, so well-presented in the film Wall Street. Those business certainly have ended defective. The difference now, the starry-eyed optimists tell us, is that defects in these affairs are much harder to trigger. Indeed, some of these affairs have reserved equity provisions where, if the borrower can not pay, in cash, has the option only to the publication of more action to the provider. That system works well, until and unless the borrower is in genuine difficulties. It can not be in default, because it maintains the right to publish more action (of unworthiness growing) with the provider. So what was accomplished? The risk of financial disaster only was transferred from the borrower to investors nell'affare private equity. As know, nobody so far has calculated out a mechanism to generate returns of the level of € bondâ of junk œ of the â € the quality accreditation of € instrumentâ of the Ministry of Treasury of the œ  € of. But, investors in many of these vehicles are allowed in some way that bamboozled into thinking that someone had. And were willing to pay astronomical taxes it. Now, of course, many investors are running for the exits, really shaken the capital to lose! And the financial statements of € of Engineersâ of œ of the â € elemosinando is the Federal Reserve to drive inside to rescue and to reduce the rate of Fed Funds. Who avvantaggierebbe through that action? Well, the stock market probably should be over, at least for a while '. The federation is supposed to be in trade in propping up the stock market? On the one hand, almost certainly would run on the dollar as the U.S. already damaged. The disorder Sub-Main would not be solved by any action, as is much of a problem of borrowers less stellar. It is mainly a problem of declining values on the space in a system where there was very little equity from buyers in the first place. The borrowers who could not afford conventional mortgages have bought houses, which have few or no money down and have taken the mortgages rates of puzzle, which are now recording market. So who are the victims? Not providers. They got their taxes and their points. And they still got paid when the securitizedâ of € œ of the â € of their uniforms loan and sold them on a market of recent creation and packed the other financial statements of the € œ Engineers.â of the â € not really the borrowers, even, who have been without homes put up alcun'equità and (for for a while ') low-interest mortgages instead of rent paid, to live a place that could not afford the contrary. But if the games federation the role of cavalry, or the government is doing yet another program to bail-out (anyone remember the S & L crisis?), Who CONOSCIAMO victims will be: taxpayers. We are invited to keep the bank and the fund-run alternative from the consequences of their financial status of the € œ Engineering.â of the â € The overall € of Economyâ of œ of the â € may well be strong, but the U.S. economy is determined by two thirds true vice American rabid consumerism. Once credit cards are maxed out almost all (and interest increase, in some cases, more than 30%) and the Central class can no longer access to its domestic equity does not exist (if because of the values or diminuenti the strengthening of the samples accreditation), the cost of consumption must suffer. The first hints of this are coming from profit warnings ™ S. from € of Wal-Mart, Home Depot and Macyâ. I am certainly a believer in the resilience and ultimate success of this country and we will cultivate in some way from this disorder, even in the long term. But for the shorter term, all the solemn affirmations of media professionals, government policy and committed the Wall Street analysts as offering will not change the simple truth: The economy Sub-Main is on us. Warren R. Graham Copyright 2007

Warren Graham

Comments

No comments yet.

Sorry, the comment form is closed at this time.