A healthy crunch
10:23am
It seems the silly season is extending to financial markets. I have yet to hear a convincing explanation about how the credit crunch is supposed to be such a disaster for the companies quoted in London and New York - yes, its bad news for American homeowners and a few of the more speculative private equity deals. But we need these credit squeezes to make sure we don’t repeat the mistake of Asia in 1998 and have asset prices pumped up to ridiculous levels by cheap debt. Isn’t this the kind of weeding we need in a healthy stock market? And as Lombard Street research powerfully argues here stock markets are now looking rather cheap by historical standards. Braver souls than me may consider this the time to buy.
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paul
August 10th, 2007 11:22amIf only I had a login to Lombard Research.
Timj
August 10th, 2007 11:59amWhy is this bad news for more people than US homeowners and speculative private equity deals? Credit default swaps. Designed to spread risk evenly around, the enormous expansion in the CDS market has meant that everyone is a bit exposed to market tightening - and no-one is entirely sure how much. It doesnt take a lot of uncertainty when the numbers are in the $bns to scare investors - and when the investors start to get scared, so should Gordon Brown