From: Daytona 
Newsgroups: uk.finance
Subject: Re: Credit Bubble finally bursts
Date: Sat, 11 Aug 2007 09:52:20 +0100
Bytes: 3453

On Sat, 11 Aug 2007 07:40:15 +0100, "Jane T"  wrote:

>After all the markets have 
>fluctuated wildly this year and its very strange to see such highs and lows 
>that investors must believe the economy be both strong and weak.

It's normal market cycle behaviour imo, the sensible people see change
in the air (boom to normal/bust) and reduce activity, waiting for the
dust to settle, leaving the market dominated by the schizophrenics.

It was obvious to anyone with judgement that equities offered little
value for money over the last year. The numpties, including the press
which dutifully spouted the financial services industry line, kept
parroting on about the low P/E without even considering that the
market was pricing in the removal of that aspect of exceptional
company earnings resulting from the credit boom.

The excellent Personal Assets Investment Trust (PAT) quarterly
recently said that if the excess borrowing was removed, there had been
no growth in  GDP since the turn of the century.

>How do you see the intervention of the ECB, US and other banks as they lend 
>the markets the money?  Will this just prolong the inevitable?

I was surprised by the amounts involved, but then again I've no idea
how much they have to play with. Usual rules no doubt apply - if it's
just short term, no problem, anything other is making things worse.

>Also will the result be inflation or deflation?
>
>And where are you invested at the moment?  If I can remember you were in 
>cash with a little bit of gold.  Whats you current position?

I think it was Japanese equities as well ?

I see that M's done a good review of the CDO situation here


Basically a poor business idea - lending to people who couldn't afford
to repay - which was temporarily made viable by selling on the debt
with CDOs has now been revealed as unviable.

Lenders pyramided by making new loans faster then customers defaulted,
so as a percentage, the arrears appeared stable, to those not doing
any background research.

Silly fund managers didn't do any research and decided to gear up and
invest. Their lenders have now changed their minds and don't like what
they invested in and have called in the loans. The assets are worth
less than the liabilities. They've now lost all their clients money.

Daytona