Wednesday 28 February 2007

Is The End Nigh?

Stock Markets around the world suffered huge falls yesterday. All triggered by a near 10% fall in the Shanghai Stock Market.
The falls were so rapid that the traders were unable to complete deals yesterday, meaning that the trades will have to be done today and so the markets will suffer equally sharp falls today.
Will this trigger a downturn? I think it might, as all the ingredients are there for a slowdown in the world economy. Even the venerable Alan Greenspan said only on Monday that the US was in for a recession. When the US has a recession, so does most of the world.
The imbalance of the carry trade (this is the rest of the world borrowing from Japan at 0.5% interest rates) has helped to boost markets, but the position has to be 'unwound' in the long term as it boosts excessive risk taking. In the US and UK the asset bubble caused by the cheap money, in houses, equities, minerals and even money (in the form of consumer credit lending) in fact in almost everything, has helped maintain a frothy economy despite many of the fundamentals being wrong. For example, the high UK tax burden should have held our economy back recently, the carry trade explains why not, along with cheap goods for China that it finances which hold down our inflation.
If the Chinese Government does intervene more in its burgeoning economy then this trend will last. In some ways to get the pain done now in a short slowdown is better than letting it carry on for another year.
However, if you have investments in ISA's and other liquid assets, think about doing something. When the markets collapse if you sit still you lose the most. Think about switching to cash or defensive stocks if you can.


Anonymous said...

IHT link doesn't work (extra "http").

Anonymous said...

PS: Sorry, not IHT link but 1st "huge falls" link.

Anonymous said...

What will the spin-offs mean as far as we are concerned in the UK? What happened in China to lead to this 10% fall?

CityUnslicker said...

anon - thanks, fixed.

E - The chinese goverment made noises about increasing taxes on share trading for investors. Our markets will fall too.

There is the possibilty that this will be short lived, but the Bull market will end this year.

Anonymous said...

Thanks for the clarification.

Tony said...

Gordon Brown must be holding his head in his hands watching this unfold. The curtains around his house of cards is at risk of blowing open and revealing the true state of the economy.

If there was a single rain cloud in the sky this week, it would be following Gordon's every move and dumping considerable amounts of precipitation on him. I wonder if Miliblogger and Co are secretly into voodoo?

Snafu said...

You can all sleep easy! How many times has Gordon Broon banged on about "no return to boom and bust"!?!

James Higham said...

I ran this as well but you did it in detail. Thanks for this post.

Anonymous said...

Ohhh good news. No cash, but no debts other than government student loans me.

All we need now is the USA to bomb Iran and Oil rpices to surge and I'm ready to grab my bit!

Of course the way all you old fogies have rubbed my nose into the house price boom I won't give a shit if any of you end up on the street!

CityUnslicker said...

does being 31 make me an old fogie Stephen?

Newmania said...

Yes CU you were born very young fogey. I am more a Peter Pan of Rock and Roll.,....type..I think

cheap goods for China that it finances which hold down our inflation.......and cheap Labour I assume which must have an enormous impact on construction where , as they are self employed , the Poles are not counted.

It has been my suspicion for a long time that the growth of our economy had been achieved becase of stupendous groth in other more efficient economies and there would be an end to it.

I moving into Hitches compound where we have enough guns ammo and tinned food for ten years .The beast will soon be walking his earth CU .

PE still all over the place and in Orivate Eyee today a most interesting article about PFI off balance sheet borrowing which has troubled me all year. £35bn and it may have to be accounted

CityUnslicker said...

worse N, the NHS unfunded pension scheme is £62 billion in the hole.

The mind boggles.

Our current boom is an asset bubble. it will not necessarily end in total doom and gloom; but things won't be pretty either.

Newmania said...

worse N, the NHS unfunded pension scheme is £62 billion in the hole.

I keep bagering you to do something on the whole question well..badger badger badger

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