Tags: Bris | financial | crisis | April

IMD Prof Bris: Financial Crisis Coming as Soon as Next April

By    |   Wednesday, 09 July 2014 12:18 PM

While we may still be getting over the last global financial crisis, another one will arise as soon as April 2015, says Arturo Bris, professor of finance at IMD business school in Switzerland.

He sees eight possible causes of a meltdown.

1. Stock market bubble.
"In the last year, stock markets have performed unrealistically well and at some point the situation will explode," Bris writes in a commentary provided to Moneynews. "If markets were to revert to a reasonable level with regards to earnings, there will be a stock market drop of between 30 and 35 percent.

Editor’s Note:
New Warning - Stocks on Verge of Major Collapse

2. China banking crisis.
This could be sparked by the country's burgeoning shadow banking system. "If this system collapses, it will negatively affect the global economy," he argues.

3. Energy crisis.
Paradoxically, the explosion of U.S. energy production could turn into a problem, Bris notes. "If the U.S. begins exporting [natural gas] to the rest of the world, Russia might feel threatened, causing a geopolitical storm," Bris writes. "The U.S. would have control over energy prices."

4. Real estate bubble.
Brazil, China, Canada and Germany are at risk here, he maintains. "Buyers are pushing prices up without realizing that they do not correspond to fundamental values."

5. Corporate ratings and bankruptcy crisis.
Companies are overburdened with debt and have low credit ratings, Bris explains. "In the U.S. there are only three companies left with an AAA rating. . . . If ratings are an indicator of bankruptcy, there will be bankruptcies across the board. If interest rates increased by 2 percentage points, half of the corporate sector would be wiped out."

6. War and political conflict.
Geopolitical tension is rife across the globe, he notes. "Events like the current crisis in Crimea, could trigger a market crash, even if there is no war."

7. Poverty. It's on the rise, Bris contends. "And whenever the poor become poorer, we can expect a social conflict."

8. Cash and hyperinflation. The huge cash holdings of companies and central banks could hurt the economy, he writes. "The ECB [European Central Bank] is lending money to financial institutions that put it back into the ECB, which is a vicious circle."

"While many economies seem to be finally rebounding since the 2008 crisis, we shouldn't be complacent," Bris states. "Too often we do not learn from history and do not act when faced with a crisis we know is imminent."

David Dayen of The Fiscal Times agrees with Bris about the growing danger in U.S. debt markets. "The housing bubble fueled the last financial crisis, but these current risk pools largely sit in our capital markets," Dayen writes.

"Regulators agree that newly issued corporate debt, a record amount of it below investment grade, has built up well beyond comfort levels." Investors purchased as much in leveraged loans during 2013 as they did from 1997 through 2012 combined, Dayan argues.

"Adding to the breakdown in underwriting standards, non-bank firms like hedge funds are performing a growing share of traditional bank activities, like providing corporate loans," he says.

"As everyone seeks market share, lending quality loosens."

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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While we may still be getting over the last global financial crisis, another one will arise as soon as April 2015, says Arturo Bris, professor of finance at IMD business school in Switzerland.
Bris, financial, crisis, April
538
2014-18-09
Wednesday, 09 July 2014 12:18 PM
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