and they say that cheap money has saved the housing market from bursting. mmmhhhh, just look at the latest numbers. and by the way, the cheap money and all the praised innovations caused the bubble.
nevertheless the story is worth reading (mine is only a smaller summary). to read the full piece click on the headline.
alles in butter. billiges geld auf jahre hinaus etc. lediglich ein paar kleine warnungen das auch risiken bestehen. besonders das ausgerechnet der immobilienmarkt als beleg dafür herhalten muß das billiges geld ne tolle sache ist erscheint fragwürdig. genau dieses billige geld plus die hier gepriesenen kreditinnovationen haben erst zu diesem excess geführt.
trotzdem lesenwert.. um alles zu lesen bitte auf die überschrift klicken
Money is cheap. And some experts say it could stay that way for years. That's creating opportunity—and brand new risks ...
When the rate on the 10-year Treasury bond plunged from 6.5% in early 2000 to an average of 4% or so in 2003, the explanations were easy: tech bust, recession, weak capital spending, low inflation, steep rate cuts by central banks around the world. The low rates seemed perfectly normal—and sure to reverse on a dime when conditions changed....
Since then, plenty has changed. The Fed has hiked short-term rates by more than four percentage points. The global economy grew by 5.1% in 2006, the second-strongest performance in 25 years. Europe and Japan have recovered. Even tech spending seems to be on the rise, judging from Cisco Systems Inc.'s strong earnings report on Feb. 6. and yet!—10-year Treasury rates have risen only three-quarters of a percentage point.
Real rates, which adjust for inflation, have barely budged.It isn't only a U.S. phenomenon. Ten-year euro bonds are yielding around 4% today, no higher than in 2003, despite much faster growth in the region. Real rates in the euro zone are up only a bit.
Borrowers, of course, are deliriously happy. Even the shakiest companies are seeing their debt costs plunge. The spreads on triple-C rated bonds and lower—the junkiest of junk—are at a record low 4.7 percentage points over ultrasafe Treasuries, compared with the previous record of 5.2 percentage points in 1997,
Most remarkably, the craziness isn't likely to stop anytime soon. The low cost of capital is probably going to last "five to seven years," says Samuel Zell, ..... James W. Paulsen, chief investment strategist at Wells Capital Management (WFC ), sees an even longer horizon: "This could be a prolonged cycle where the cost of capital is low [for] 10 or 20 years." read what pimco has to say further down.../lest was pimco später im post dazu zusagen hat.....)
It is, indeed, a low, low, low-rate world.
Easy money is creating all sorts of economic benefits. Corporations are making capital investments (really? see graph....wirklich?)again—and with their borrowing costs so low, profits are still zooming. Private equity firms are using loads of cheap debt to buy companies at jaw-dropping prices. Even the housing market, which boomed for five years on cheap money, hasn't fallen apart. It's gliding to a soft landing rather than a hard crash, allowing consumers to keep spending. ".... (this guy hasn´t heard the latest news.../hat wohl lange keine nachrichten mehr gelesen....)
"I think that's going to be a growth accelerant around the world."
But the easy money also brings a slew of unexpected problems. Historically, risky borrowers have had to pay much higher interest rates on their debt. Now there's little penalty—and that means there's less incentive for companies to stay fiscally sound
"I've never seen issuers have this much power"
"You're laying the groundwork for future turbulence."
...key factor is the development of new trading instruments. Financial innovation isn't new,....But innovation seems to have reached a fever pitch with the recent advances in collateralized debt obligations (CDOs), which keep borrowing costs low by dividing risks into big buckets and then reallocating them among hundreds of investors. With nearly half a trillion dollars' worth issued in 2006 alone, and with the risks widely dispersed, investors are willing to put more skin in the game. "....
thats what pimco has to say
Does credit innovation carry risks? Yes. As we have seen with housing, new home buyers can be lured into buying homes they cannot afford. Ultimately, rising defaults and restricted credit availability will negatively affect the housing market, foreshadowing what is also in store for the credit market. ......... These products (cds, cdo´s, cpdo´s....) and markets are relatively new and, more importantly, have yet to be tested in a bear market.
Leverage has been pushed to the point that corporate bonds, and particularly CDS securities, may have limited upside potential going forward
But the downside of the long-term trend is short-term financial market excess. It's here, and it's real. "The economy is robust, [but] we've entered into this new phase where the markets are financing riskier transactions
The bottom line is that when there's too much money in the market, [investors] lower [their] standards." What's more, many are depending on instruments that are highly leveraged, numbingly complex, and untested by a market downturn. (should be a good feeling that highly leveraged hedge funds are often the counterparts.../muß ein gutes gefühl sein das extrem gehebelte hedge fonds oft der gegenpart einer wette sind....)
Over the long term, the big issue is the development of better financial systems in China, India, and other emerging markets. Right now money is pouring into real estate rather than infrastructure, education, and other essential investments. As financial systems improve in these countries, they will likely make better use of their own money. When that happens, the cost of capital around the world will go up.
But that's a long way off. In the meantime, rates are likely to remain low. "Whatever shocks are ahead," says del Missier, "the markets are better positioned to deal with them than they've ever been."
i also think they should mention the impact of the petrodollers. make sure you read this piece from pimco. one of the best ever http://immobilienblasen.blogspot.com/2007/02/its-low-low-low-low-rate-world-bw.html. looks like we need high oil prices to keep the game going........
ich finde das der einfluß der öl$ extrem wichtig in der betrachtung ist. bitte den link von pimco oben lesen. das beste was ich bisher gelesen habe.