GaveKal: Hermes Ties, Longines Watches & Sub-Prime Bonds
From Charles Gave’s latest piece:
. . . I have seen all kind of bear markets. And I find that they typically fall in one of two categories:
- The bear markets created by governments, usually because one or several of what we have called The Five Cardinal Sins (protectionism, tax increases, monetary policy mistakes, regulatory overkill or war…) are committed.
- The bear markets triggered by the market participants themselves, usually because of the belief in some kind of a “Ponzi scheme”.
In fact, one could conclude that the sub-prime debacle is great news for the equity markets; after all, our Ponzi scheme, which, for the past few years had been the only competition in town to stocks and commodities, is now disappearing. Should we be surprised that, as the Ponzi-scheme competition disappears, equities in the US and around the world, along with commodities, are making new highs?
Thought-provoking, as usual.
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July 24th, 2007 at 10:07 am
Very difficult to say (speculate!) which way it could go. Some economists are of the view that spill over effect into credit markets (including corporate bonds/LBO) is very likely. Others feel Equity class investors are different from Debt class investors and hence blessing in disguise. But the truth may be in between.
For India too it could mean problem,if liquidity dries up due to sale of Equity assets to compensate for losses in credit markets.
July 28th, 2007 at 7:22 am
Seems GaveKal may be off target this time. Surely there are signs of Equity Markets interlinkage with Debt Market. Emerging Markets may be the strongest candidate for meltdown. Watch out Black Monday on BSE.