In my judgment, we are possibly right at the cusp of a stock decline of the magnitude of the 1929 stock crash sometime this year.
Chris Laird -- www.PrudentSquirrel.com
Mar 14, 2007 -- With the unraveling of the Yen carry trade, a sequence of events has been set in motion for a world liquidity crisis. Combining this with ongoing pressure from U.S. sub prime deterioration will further harm confidence in U.S. and consequently Asian stock markets.
As of this writing, Asian markets are again down 2-3 percent (Editors note: Asian markets are up Thursday morning). I had written last week that confidence in financial markets were dealt a major blow in the first wave of Yen Carry unwinding a week or so ago in the article titled Damage Has Been Done.
This week, we are seeing the second phase of market declines, the U.S. Dow down 230, and as I said Asian markets down 2-3 percent again. To say the least, market sentiment is getting crushed globally.
Now, combine this with still huge Yen carry overhang, and a seriously deteriorating US economy, and we will now see, and are seeing, the emergence of a world liquidity crisis.
I am going to discuss some of the components, there are many facets. But first, I want to say that, with market sentiment now so badly damaged, and the fundamental problems central banks will now have trying to re inflate financial markets -- pushing on a string -- the central banks will ultimately fail re inflating financial markets. I do not believe they can either save market sentiment in 2007, nor overcome consumer sentiment that is falling like a stone right after the stock crashes of the last weeks. In my judgment, we are possibly right at the cusp of a stock decline of the magnitude of the 1929 stock crash sometime this year.
Now, many people believe that markets will likely recover, that this present world stock decline is merely a correction. But, I view the market recoveries in the United States and Asia last week as a dead cat bounce. I am fairly sure that we are going to see a great world stock crash that will make last years stock declines near this time of year look rather benign. The trouble is, this time, the United States is now facing the necessity of lowering interest rates, and that will add further fuel to Yen carry unwinding. Many other factors also will just drain liquidity from financial markets, including housing and commercial real estate and so on, there are many facets to this emerging liquidity crisis so lets get started...
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