Credit levels dwarf 1929 says Soros

Posted by robin in Financial Articles Market Commentary Friday January 30, 2009 5:59 pm

“Now that the bankruptcy of Lehman has had the same shock effect on the behaviour of consumers and businesses as the bank failures of the 1930s, the problems facing the administration of President Barack Obama are even greater than those that confronted Franklin D. Roosevelt.

“Total credit outstanding was 160 per cent of gross domestic product in 1929 and rose to 260 per cent in 1932; we entered the crash of 2008 at 365 per cent and the ratio is bound to rise to 500 per cent. This is without taking into account the pervasive use of derivatives, which was absent in the 1930s but immensely complicates the current situation.

“On the positive side, we have the experience of the 1930s and the prescriptions of John Maynard Keynes to draw on.”

George Soros

FT 29 January 2009.

 

 

Recession, oil gloom but a bottom for credit, perhaps…

Posted by robin in Financial Articles Market Commentary Friday November 7, 2008 6:17 pm

In the swathe of bad news swamping us, a couple of items pop out from today’s Times.

The IMF has downgraded next year’s global growth forecast from the one it made only a month ago! An acknowledgement of how far and how fast the global economy has changed.

Don’t expect 3%, expect 2.2% they say. Anything below 2.5% is considered a recession, so recession it is for el mundo next year. Presumably the MPC knew this ahead of time when they decided on their jumbo 1.5% rate cut yesterday.

Further gloom was in store from the International Energy Agency, which reminds us that while the oil price is in abeyance as global growth turns negative, the longer term story remains the same. The black goo is running out but our love for it does not. The increasingly acute supply/demand imbalance suggests when the green shoots of economic growth reappear the price of crude is likely to be shooting up alongside it. We could by looking at $200 by 2030. Central bankers will be delighted!

Their 2008 World Energy Outlook forecasts a 45% increase in global energy demand by 2030. But while demand is healthy, supply is looking distinctly sickly and needs attention. It will struggle to keep up as existing production declines (by more than 9% a year from leading fields according to a leaked FT report). Unconventionals will have to plug the gap - eg Canadian Tar Sands, natural gas to liquid. - to fatten the aggregate oil pipe from 84m bpd to 106m by 2030.

“The world was not yet facing an outright shortage but more a lack of investment.” $26trn needs to be spent in the next couple of decades to ensure the pumps don’t run dry and the crude price doesn’t fly into orbit.

Where’s a bulge bracket bank gagging to lend when you need one, eh?

Elsewhere, we find a ray of good news. Razor sharp US private equity house Blackstone, which floated right at the top - two months before the credit crunch - is calling the bottom of the credit markets. They believe liquidity is returning.

For the record, the shares were worth $35 after they ’soared’ on their first days’ trading back in June 2007. Yesterday, they closed at a poxy $7.55, almost 80% down from their debut. Maybe, just maybe, now’s the time to buy in as the fund goes bargain hunting for crippled businesses at knockdown prices…