nrolland (![[info]](http://l-stat.livejournal.com/img/userinfo.gif){kind=small} nrolland) wrote,@ 2008-09-23 13:03:00 |
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Petit commentaire economique #2
The development of what started a year and half ago seems to get bigger everyday to the point where one should reflect upon the meaning of it. I already blogged about it last year, and I personally sold the few stocks I had in june 07, as I recommended in my entry.
In an attempt to rationalize the current events, I can only point to a few effects
- This is a financial crisis, not an industrial crisis
- From a finance perspective, the problem is not liquidity, but losses. those can be actual and acknowledged for (banks revealed 500bUSD up to now) or in the making (real etate market is still falling...)
- Liquidity injections are (only) potent at making sure industrial companies will be protected from liquidity problems.
It does not solve the loss problem from banks.
- There is a huge burden being transferred onto american taxpayers, of which the last 700 bUSD is only a portion.
- The 700bUSD plan is politically sensitive and kind of hard to enact really..
- USA are very reliant on foreign countries lending them money (china, japan, europe) or using USD for their own purpose
The only perspective I have ever seen for the housing bubble, for the huge debt as well, is that of inflation.
Problem is, inflation will threaten the confidence investors have in the USD, on which america notoriously relies on.
As a chinese or a japanese, I would not want to buy more USD (except if I am confident I will have more and more resources in the future, and I think I can bargain this against significant role or power)
Overall, for the future, my guesses are :
- There is a significant risk of dollar collapse, in which case some intervention will come (around 1.8 EURUSD)
- The bailout package might depress consumption as people realize tough times are ahead.
- If that is the case, I expect overreaction (downward) from stock market as the economy adapts to a shift in economy equilibrium (real estate) and a shift in regime (recession)
In terms of financial instrument that means :
- buy call EURUSD strike 1.5 , sell call EURUSD strike 1.8, both when it comes around 1.45
- if there is a further 45 pct drop in stock market, go in and buy some (so SP500 roughly at 650), in the meantime, buying some puts
ps : My personal take for the US would have been energetic and economy independence, but this is clearly impossible in the current state : wall street greed and political irresponsability pays more than the opposite. and of course the journalist who are supposed to spread the information were busy taking of more important subject like Mr Spitzer love affair.....
The development of what started a year and half ago seems to get bigger everyday to the point where one should reflect upon the meaning of it. I already blogged about it last year, and I personally sold the few stocks I had in june 07, as I recommended in my entry.
In an attempt to rationalize the current events, I can only point to a few effects
- This is a financial crisis, not an industrial crisis
- From a finance perspective, the problem is not liquidity, but losses. those can be actual and acknowledged for (banks revealed 500bUSD up to now) or in the making (real etate market is still falling...)
- Liquidity injections are (only) potent at making sure industrial companies will be protected from liquidity problems.
It does not solve the loss problem from banks.
- There is a huge burden being transferred onto american taxpayers, of which the last 700 bUSD is only a portion.
- The 700bUSD plan is politically sensitive and kind of hard to enact really..
- USA are very reliant on foreign countries lending them money (china, japan, europe) or using USD for their own purpose
The only perspective I have ever seen for the housing bubble, for the huge debt as well, is that of inflation.
Problem is, inflation will threaten the confidence investors have in the USD, on which america notoriously relies on.
As a chinese or a japanese, I would not want to buy more USD (except if I am confident I will have more and more resources in the future, and I think I can bargain this against significant role or power)
Overall, for the future, my guesses are :
- There is a significant risk of dollar collapse, in which case some intervention will come (around 1.8 EURUSD)
- The bailout package might depress consumption as people realize tough times are ahead.
- If that is the case, I expect overreaction (downward) from stock market as the economy adapts to a shift in economy equilibrium (real estate) and a shift in regime (recession)
In terms of financial instrument that means :
- buy call EURUSD strike 1.5 , sell call EURUSD strike 1.8, both when it comes around 1.45
- if there is a further 45 pct drop in stock market, go in and buy some (so SP500 roughly at 650), in the meantime, buying some puts
ps : My personal take for the US would have been energetic and economy independence, but this is clearly impossible in the current state : wall street greed and political irresponsability pays more than the opposite. and of course the journalist who are supposed to spread the information were busy taking of more important subject like Mr Spitzer love affair.....
