The Subprime pig strapped on his wings this week and feasted at different troughs in a variety of countries. While the countryside varied, much to the pig’s delight, the food was identical: Same old leftover slop from irresponsible subprime lending procedures primarily designed to feed somebody’s corporate bottom line no matter what the long-term outcome might be.
Affected countries, besides the U.S., included Australia, Germany and France. Yes, even the French saw their culture invaded by having to interrupt their wine and cheese desert to come to grips with the fact that some of their own U.S. exposed hedge funds stopped redemptions. The European Central Bank injected some $130 billion into the financial system to provide liquidity, a step which was followed by the Fed a day later.
Once the subprime pig is on the move, there is no way of knowing where it might stop and feast next. And that is a big problem because there is no transparency as to which financial institution has how much exposure.
There is a good chance that far more companies have invested in these loans through a variety of schemes, and fear of redemptions may keep them from disclosing their true risk exposure until the heat is really on.
If this trend continues, it will be an absolute certainty that the stock market rally of the last 10 months will come to an end. And don’t kid yourself into believing that there are asset classes that will resist the subsequent downdraft.
The only safe position will be in money market—until the subprime pig has found its last meal.
Comments 2
What a shocker!
Really, it’s shocking to think that the markets are only 4 to 5% off their all time highs and the world central banks feel the need to provide liquidity!!
Not only is money market the safe bet, but in addition, only bet on money markets with safe, sound institutions.
G.H.
G.H.
The central banks’ infusion had really nothing to do with the level of the stock market, as it had with the liquidity crises due to subprime exposure. Even the largest mortgage company in the U.S., Countrywide, uttered words of confusion about a long-term financial impact on its bottom line.
Your point on the safety of the safety of the financial institution an investor has his money with is well taken.
Ulli…