Sunday, January 07, 2007

question the euphoria / disaster risk may rise

yup! maybe there could be some hangover in the year 2007 . with almost everybody bullish on almost everything something different could happen.....the following is not an unusual warning sign after a big party/volksfest especially in the rural areas in germany

denke das 2007 einige nen kater haben werden. nachdem nahezu alle bullish für fast alles sind dürften es zu enttäusuchungen kommen.

Jan. 8 (Bloomberg) -- Bennet Sedacca, president of Atlantic Advisors LLC in Winter Park, Florida, recalls being an equity trader during the October 1987 stock-market crash, .....

...... In the last three months he has reduced his holdings of stocks and raised investments in short-term Treasury and other securities on the view that another crash may be coming, two decades later.

``Disasters may be rare, but I see the kind of conditions that could make one happen,'' said Sedacca. ``It's like a big keg of dynamite with a fuse. I don't know when, but I think the conditions exist for the explosion to eventually occur.''

.... For Sedacca, the potential triggers ... the fallout from a glut of global cash.

For Phil Orlando, the chief equity market strategist for Federated Investors Inc., which manages $223 billion, it's the potential for a recession in the U.S. For David Mouser, who helps manage $350 million at Driehaus Capital Management, it's the buildup of debt to finance mergers and acquisitions.

``The single biggest risk facing global financial markets is a change in the benign credit-market conditions prevailing the last three years,'' said Mouser. ``We've had record liquidity in global markets the last few years that has driven all asset classes to continued new highs.''

Analyzing Risk
Morgan Stanley Capital International's World Index, tracking stocks in 23 developed countries, has risen 87 percent in the past four years. The firm's Emerging Markets Index has soared 212 percent. The U.S. Dow closed at a record high on Dec. 27, while Europe's Dow Jones Stoxx 600 Index last week reached the highest since December 2000. thanks to

In the U.S., strategists at 12 of the biggest Wall Street firms forecast a rally this year. European stocks will rise,..., though at the slowest pace in five years. Japan's Topix index will reach its highest year-end level since 1989, .... thanks to (this cartoon is from 1999-2001. but when you hare abby these days is could be from cnbc in 2007. she always predicts plus 10% ....../ dieser cartoon stammt aus den jahren 1999-2001. könnte aber genausogut aus ihrem intwerview auf cnbc im letzten monat stammen. ihre standartprognose ist immer plus 10% ........)

So somebody's got to question the euphoria.

``If you invest without consideration of potential risks, that's representative of a dangerous complacency.''

`Massive Default'
Sedacca and Mouser point out that higher interest rates may curtail the supply of cash and credit.....( i think that higher risk premiums will do more damage than higher rates from the central banks/ denke das höhere risikoprämien der party ein ende machen werden und nicht höhere notenbankzinsen)
At the same time, the $643.4 billion U.S. trade deficit through October, on pace to set a record, threatens to further depress the dollar, fueling inflation and pushing interest rates higher, they said. ( i don´t hink that this will be a major trigger that will cause big problems in the short run. / denke nicht das dieses kurzfristig nen großen einfluß habne wird.)

Given the ease of borrowing now, acquirers may be taking on too much debt, said Chicago-based Mouser. That in turn could lead to another possible cause of a market collapse, a bond-market blowup. ( these highly leverraged takeovers will be great shorts when the ship has turned. just like the telcos back after the mania/ diese hochgehebelten übernahmen werden nachdem das sentiment sich geändert hat erstklassiger shortmöglichkeiten bieten. man muß dafür nur die entwicklung der hochverschuldeten telekeoms ansehen.)

U.S. Slowdown
Mergers and acquisitions reached a record $3.68 trillion in 2006, ..... Yields on junk bonds used to finance buyouts are near 10-year lows relative to U.S. Treasury securities, ...

``Our concern is the excessive leverage many of these firms are taking on will eventually lead to a massive default, similar to the collapse of hedge fund Long-Term Capital Management in 1998,'' said Mouser.

Another source of tension is the slowing $12.5 trillion U.S. economy, the world's biggest. Gross domestic product expansion cooled to a 2 percent annual rate in the third quarter from 5.6 percent in the first.

The risk is that the slowdown ``actually becomes a hard landing, or recession,'' ....Investors can hedge those risks by buying health-care, consumer-staples, utility and telecommunication-service stocks, he said. (unfortunately the utilities are also sky high. not only in price but also on record level at valuations and on record lows in dividend yields.....same is true for the staples..../ dummerweise sind die bewertungen der versorger auf topniveau. sowohl was preise, bewertungen und die niedrigeste dividenrendite seit jahren angeht....)

`More Vigilance'
Even the fact that 20 years have passed since the 1987 crash doesn't mean disaster is coming
, said economist Tai Hui at Standard Chartered .....This time around, ``it will be a year that needs more vigilance and less complacency, but we do not see the justification for crisis,'' Hui wrote. ....

He said the U.S. economy should slow yet avoid falling into recession. He also noted that the 1987 crash ``turned out to be a great buying opportunity.'' .....
Goldman said he is especially concerned about Iran. .... `If you find somebody that isn't worried about Iran, see if they have a pulse,'' said Goldman.

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