Posted on 12/31/2008 7:04:41 AM PST by TigerLikesRooster
Financials may lead market rebound in 2009
SIFMA Global SmartBrief | 12/31/2008
After a tumultuous 2008, the financial sector may be one of the leaders of a market rebound in 2009. The recovery might not be a rapid one, with a slight shift in focus among emerging markets, from BRIC to ICK countries. "Emerging markets like Brazil, Russia, India and China, or the BRIC nations, have tanked amid the global-asset sell-off," according to the Wall Street Journal. "As 2009 begins, emerging-market countries sporting the best earnings growth compared with current price are India, China and Korea, or the ICK countries." Wall Street Journal, The (subscription required) (31 Dec.)
(Excerpt) Read more at smartbrief.com ...
India’s stock market is definitely undervalued. However, there is a risk premium there with the potential war with Pakistan.
India continues to have GENUINE growth of about 7-9% a year. This contrasts with the alleged 9% growth in China, that many analysts doubt is even accurate.
India is very corrupt too but being a democracy it is also very open and hence all numbers are easy to verify.
Sounds fishy to me.
I notice that China is in both categories.
BRICK ==> ICK
Sounds like we’re falling out of the CRIB of last year, and being greeted by a KIC (hard ‘C’) or a KIC (soft ‘C’) in the new year—depending on how the markets go.
Since I can’t read the subscription-only article, I’ll just say, I don’t see how the financials will lead. First, who want’s to borrow next year? Second, the investment banks are all kaput, and are all bank-holding companies with new regulatory restrictions.
I don’t even know what the financial sector is going to look like post 2008. How am I supposed to be able to guess if it will lead. On the face of it, money always leads a recovery. The faucet of money usually starts flowing before businesses and consumers hop into the shower. So the conventional wisdom would be, financials will lead a recovery. But things are so different now among the newly reshaped financials, I’m not sure how this is going to look or how long it will take.
Then again, I really disagree that there will be any recovery in 2009. The pundits are all treating this like a typical 18-month recession, calling a recovery in 3Q 2009. I see this recession as 25-months, easily.
IMHO, it will be the consumer who leads the recovery, and that is not going to be any time soon.
Counterpoint here...
“Will Banks and Financial Markets Recover in 2009?
“By Nouriel Roubini
“NEW YORK - Global financial markets in 2008 experienced their worst crisis since the Great Depression of the 1930’s. Major financial institutions went bust; others were bought up on the cheap or survived only after major bailouts. Global stock markets fell by more than 50%; interest-rate spreads skyrocketed; a severe liquidity and credit crunch appeared; and many emerging-market economies staggered to the International Monetary Fund for help.
“So what lies ahead in 2009? Is the worst behind us or ahead of us? To answer these questions, we must understand that a vicious circle of economic contraction and worsening financial conditions is underway.
“The United States will certainly experience its worst recession in decades, a deep and protracted contraction lasting about 24 months through the end of 2009. Moreover, the entire global economy will contract. There will be recession in the euro zone, the United Kingdom, Continental Europe, Canada, Japan, and the other advanced economies. There is also a risk of a hard landing for emerging-market economies, as trade, financial, and currency links transmit real and financial shocks to them.
“In the advanced economies, recession had brought back earlier in 2008 fears of 1970’s-style stagflation (a combination of economic stagnation and inflation). But, with aggregate demand falling below growing aggregate supply, slack goods markets will lead to lower inflation as firms’ pricing power is restrained. Likewise, rising unemployment will control labor costs and wage growth. These factors, combined with sharply falling commodity prices, will cause inflation in advanced economies to ease toward the 1% level, raising concerns about deflation, not stagflation.
“Deflation is dangerous as it leads to a liquidity trap: nominal policy rates cannot fall below zero, so monetary policy becomes ineffective. Falling prices mean that the real cost of capital is high and the real value of nominal debts rise, leading to further declines in consumption and investment - and thus setting in motion a vicious circle in which incomes and jobs are squeezed further, aggravating the fall in demand and prices.
“As traditional monetary policy becomes ineffective, other unorthodox policies will continue to be used: policies to bail out investors, financial institutions, and borrowers; massive provision of liquidity to banks in order to ease the credit crunch; and even more radical actions to reduce long-term interest rates on government bonds and narrow the spread between market rates and government bonds.
“Today’s global crisis was triggered by the collapse of the US housing bubble, but it was not caused by it. America’s credit excesses were in residential mortgages, commercial mortgages, credit cards, auto loans, and student loans. There was also excess in the securitized products that converted these debts into toxic financial derivatives; in borrowing by local governments; in financing for leveraged buyouts that should never have occurred; in corporate bonds that will now suffer massive losses in a surge of defaults; in the dangerous and unregulated credit default swap market.
“Moreover, these pathologies were not confined to the US. There were housing bubbles in many other countries, fueled by excessive cheap lending that did not reflect underlying risks. There was also a commodity bubble and a private equity and hedge funds bubble. Indeed, we now see the demise of the shadow banking system, the complex of non-bank financial institutions that looked like banks as they borrowed short term and in liquid ways, leveraged a lot, and invested in longer term and illiquid ways.
“As a result, the biggest asset and credit bubble in human history is now going bust, with overall credit losses likely to be close to a staggering $2 trillion. Thus, unless governments rapidly recapitalize financial institutions, the credit crunch will become even more severe as losses mount faster than recapitalization and banks are forced to contract credit and lending.
“Equity prices and other risky assets have fallen sharply from their peaks of late 2007, but there are still significant downside risks. An emerging consensus suggests that the prices of many risky assets - including equities - have fallen so much that we are at the bottom and a rapid recovery will occur.
“But the worst is still ahead of us. In the next few months, the macroeconomic news and earnings/profits reports from around the world will be much worse than expected, putting further downward pressure on prices of risky assets, because equity analysts are still deluding themselves that the economic contraction will be mild and short.
“While the risk of a total systemic financial meltdown has been reduced by the actions of the G-7 and other economies to backstop their financial systems, severe vulnerabilities remain. The credit crunch will get worse; deleveraging will continue, as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, thus causing more price falls and driving more insolvent financial institutions out of business. A few emerging-market economies will certainly enter a full-blown financial crisis.
“So 2009 will be a painful year of global recession and further financial stresses, losses, and bankruptcies. Only aggressive, coordinated, and effective policy actions by advanced and emerging-market countries can ensure that the global economy recovers in 2010, rather than entering a more protracted period of economic stagnation.
“Nouriel Roubini is Professor of Economics at the Stern School of Business, New York University and Chairman of RGE Monitor (www.rgemonitor.com), an economic and financial consultancy.
You must be an ichthyologist.
So is India. They are both failures and leaders of the recovery? Hmmm.
But I am convinced it's impossible to get anything by fellow freepers. No reference is so obscure that someone doesn't "get" it.
Ain’t it great?
1. “falling prices mean that the real cost of capital is high
2.Today’s global crisis was triggered by the collapse of the US housing bubble, but it was not caused by it.
3. America’s credit excesses were [much broader than just] residential mortgages, [but included] commercial mortgages, credit cards, auto loans, and student loans securitized products that converted these debts into toxic financial derivatives; in borrowing by local governments; in financing for leveraged buyouts that should never have occurred; in corporate bonds that will now suffer a surge of defaults; in the dangerous and unregulated credit default swap market.
4. There was also a commodity bubble and a private equity and hedge funds bubble as they borrowed short term in liquid ways, leveraged and invested in longer term illiquid ways.
5. The biggest asset and credit bubble in human history is now going bust
6. deleveraging will continue, causing more price falls and driving more insolvent financial institutions out of business.
Have they even abandoned the denial that the recession has even begun? Or do they only acknowledge the beginning of a downturn and drop in financials after it is all over and it is supposed to turn back up?
“Dead bodies may get up and dance!”
Yeah, they may!
~~Harvard Economic Society, May 17, 1930
Yes, for the most part the pundits I’ve seen are admitting we’ve been in a recession all year. Now that the only official word is that we are, they are stuck with that determination.
The greater stubborn resistance I see is coming from friends, co-workers and the general republic. Look at the Freepyannas here alone. They refuse any definition but the shotgun definition of “2 consecutive quarters of negative GDP growth. They see a mall parking lot crowded and assume nothing has changed, as if credit is still freely flowing. Their money is safe, and they assume everyone’s is. They are retired with a big nest egg and a paid-for home, and they assume everyone is equally buffered from the unemployment juggernaut.
Lots of ignorance and denial here and elsewhere.
I was listening to a talk-show host yesterday who I like, Spencer Hughes and he is among those who doesn’t believe things are that bad and even if they are, he wants people to stay “positive” anyway. He is like Rush Limbaugh. He believes the power of optimism will overcome everything. I have to admit, there is not a single thing that pessimism will improve over optimism, all things being equal. A positive outlook is very powerful. But when feeling yourself falling off a 20 story building, there are times when optimism alone is not enough.
Optimism is great but I fear these people who are trying to downplay this economic crisis, because they run risk of creating false assurance and deprive people from the opportunity to prepare for hard times. A quiet alarm to prepare, while to not panic, and to stay optimistic that you can weather the storm, would do people much more of a service than to convince them to ignore the current and coming problems in our economy.
You don’t need to keep posting these quotes from the 1930s, although I have no problem with that, and I’m sure you wouldn’t care even if I did. LOL. Why not start posting all the lies, and bad predictions from the last 10 years. I am sure you could melt down the FREEREPUBLIC bandwidth with all the calls from all the idiots who said developing nations would decouple, there was no housing bubble, sub-prime was contained, the housing collapse would not affect the real economy, on and on...
Frankly, I would find asinine quotes and completely wrong predictions from our idiot bankers, pundits, politicians and benefactors, from 1997 to date to be more compelling than the stuff from 1930s ancient history, not that we aren’t repeating it.
Then again, maybe I should shut up and make this MY project, since you’ve already done your share with the more compelling quotes.
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