Juggling Dynamite

See video clip of Danielle discussing this morning's reading on BNN:The Street at 9:20 am

Today the UK Telegraph reports that the BIS (Bank for International Settlements) the world's most prestiguous financial body is sounding concern that years of loose monetary policy has fuelled a dangerous credit bubble, now leaving the global economy more vulnerable to another 1930's style slump.

“The BIS, the ultimate bank of central bankers, pointed to a confluence of worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.”

“The BIS said China may have repeated the disasterous errors made by Japan in the 1980's when Tokyo let rip with excess liquidity.”

Comment:  low rates/cheap money has been the common denominator throughout the boom and now resulting bubbles of this cycle.  The build of excessive debt and over-investment have led to periods of great pain in past cycles.  The present level of leverage is not a long term sustainable model.  

“U.S. Treasury prices fell Thursday as subprime concerns plagued the bond market. A Blackstone Group-led proposal to restructure and re-capitalize the Bear Stearns High-Grade Structured Credit Enhanced Leverage Fund, and a sister fund, unraveled with Merrill Lynch’s refusal to accept the private bailout. As a result, Merrill seized $850 mln of collateralized debt obligations (CDOs) held as collateral and put them up for auction on the street, accepting bids until 4:00 pm New York time. JPMorgan cancelled its plan to sell about $400 mln worth of bonds. The pressure on Treasuries appeared to be related to hedging of some those exposures. Aside from Merrill and JPMorgan, Citigroup, Bank of America, Credit Suisse, Goldman Sachs and Lehman Brothers were all lenders to the hedge fund. However, the problems are feared to go deeper than Wall Street, as the auction will likely trigger a mark-down in asset valuations due to the fire-sale conditions. Hedge funds and pension funds are cited to be among the biggest holders of CDOs, with the Wall Street Journal estimating about $1.8 trillion worth of securities backed by subprime mortgages having been minted since 2000.”  TDIS Bond Buzz