Incoming Global Status-quo Meltdown – Investing Alert

My fellow investing folks, we are in for a tough ride again. The markets are dropping all over the world with 3 to5%, led by banks and commodities. And all of these have happened only during one week.
What was behind it? Apparently, all the press hauls about Eurozone emergency bail-outs – the banks are close to a liquidity crisis again since they have less revenues from the Italy and Greece (and other European) bonds. And with the deposits fees charged by NY Mellon, with Japan trying to avoid the yen appreciation and the Turkish Central Bank dropping the reference rate, it seems that nobody wants hot money anymore in their country.
Apparently. The signs are (as one Financial Times columnist – Gillian Tett’s insight article – put it in today’s newspaper) that we are actually facing once more a confidence crisis. It seems that everybody is pulling out of the stock market and of the volatile areas of investments and running for safety. The problem is similar to the global meltdown we experienced in the US crisis – the safety areas are limited and they can only absorb so much of the hot money floating around. The safety refuges of today are the gold (already up to 1,640 USD or so), the swiss franc, the yen and a couple of other places unknown to the wide public. All of these were already crowded because of the prolonged crisis – and now they are massively overcrowded. I think this lead accidentally to over-pricing of those assets – and in turn to a loss of confidence in the financial areas of refuge.
Add to this the hot fact that the banks are holding the trigger one at each other’s head for the cash, and the cooking recipe is here. Banks are again holding to their cash and not willing to lend to each other money – which is normal if they hope for cheap government money again. The problem is however twofold:
– the Eurozone governments are willing to offer this only on a limited basis – 6 months, high costs and strings attached in terms of tied capital and
– apparently the portfolios of banks are again full of risks which are bound to materialize very soon – see the CDO’s based on government debts and the recent surge in the investment banking activities.
So it is now time to brace ourselves for a second way down. It would probably not desirable, but it is perfectly possible. And as usually, the banks are leading the way.

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