"This is the Big One" Reports the Telegraph's Evans-Pritchard

2 de julio de 2007

<body><div id="article"><p>July 2, 2007 (LPAC) -- "The last few months look like the final blow-off peak of an enormous credit balloon," writes Ambrose Evans-Pritchard today in the <em>London Telegraph</em> . The recent BIS Annual Report warns that the global financial-monetary bubble is beginning to explode.</p><p>The ongoing collapse of two Bear Stearns hedge funds has "lifted the rock on our 21st Century mutant capitalism.... When creditors led by Merrill Lynch forced a fire-sale of assets," writes Evans-Pritchard, "they inadvertently revealed that up to $2 trillion of debt linked to the crumbling US sub-prime and 'Alt A' property market was falsely priced on books. Even A-rated securities fetched just 85 percent of face value. B-grades fell off a cliff. The banks halted the sale before 'price discovery' set off a wider chain-reaction."</p><p>With no buyers for this garbage, Evans-Pritchard notes that the junk bond market is also in danger, such that "of $20 billion junk bonds planned for sale last week, only 3 billion were actually sold."</p><p>He adds the following devastating statistics on the bubble's growth this year: "Global M&A deals reached $2,278bn in the first half, up 50% on a year. Corporate debt jumped $1,450bn, up 32%. Private equity buy-outs reached $568.7bn, up 23%. Collateralised debt obligations (CDO's) rose $251bn in the first quarter, double last year's record rate. Leveraged deals are running at 5.4 debt/cash flow ratio, an all-time high."</p><p>Albert Edwards of Dresdner Kleinwort says, "this is the big one: all investment portfolios will be shredded to ribbons."</p><p>The underlying reason for the recent years' flood of liquidity "is the ultra-loose policy of the world's central banks over a decade.... Don't blame capitalism. This is a 100%-proof government-created monster. Bureaucrats (yes, Alan Greenspan) have distorted market signals, leading to the warped behaviour we see all around us. As the BIS notes tartly in its warning on the nexus of excess, this blunder has official fingerprints all over it. 'Behind each set of concerns lurks the common factor of highly accommodating financial conditions,' it said."</p><p>Don't count on a solution from the new Fed chief Ben Bernanke, he warns: "He will slash rates to zero if necessary, and then - in his own words - drop cash from helicopters."</p></div></body>