As the G7, G20, IMF and World Bank members convene in a concerted attempt to buy the bottom in equity markets by endorsing the stability and availability of overnight lending, I’ve seen a flurry of headlines that vary from alarming to amazing.
Some examples include:
“IMF warns of financial meltdown” – Gee, you don’t say?
“Paulson warns emerging markets not immune to turmoil” – From what I’ve seen emerging markets are the center of the worst sell-offs.
“GM and Ford discussed merger” – Two troubled automakers to merge? Seems like a bad idea.
“Chrysler, GM have merger talks: sources”” – In an apparent attempt to stave off the collapse of GM, GMAC, the lending arm, would be sold off to Cerberus Capital Management in a swap for the stake in Chrysler. A better plan for GM.
” OPEC to IMF: Bearsh oil market likely to persist” – Will they cut production? Probably.
All this and more adds up to the amazingly fragile global economy that we find ourselves caught within. We are certainly seeing the effects of panic, deleveraging and the breakdown of confidence between banks.
As global central bankers attempt to reinflate the recessionary environment, the consequences to currencies vs. hard assets and commodities may be drastic. Don’t be surprised if you see remarkable inflation begin again during the next economic rebound.
We don’t feel that a bottom can be purchased, but with solid coordinated global rate cuts, liquidity injections, equity stakes taken in banks and troubled assets removed from balance sheets we may just see a bit of stability in the remarkable sell-off that was merely delayed, but has been scheduled for quite some time.
Bernanke and Paulson’s previous efforts to stave off crisis consisted of putting band aids on a patient with an axe wound. It did not solve the problem and in the end made it worse because the actual cause was not addressed. Illiquid worthless assets on the balance sheets of insolvent institutions that must be allowed to fail.
Poor risk management is the death of businesses, whether you are a bank or a technology firm, if you can’t make more money than you’re spending you are doomed to failure. Bail outs only endorse the idea that risk management is secondary because the government is going to save you from your own bad decisions.
Eventually when the smoke clears and the dust settles there will be some remarkable bargains. Be careful trading out there!