Tags: g20 | summit

Golden Age of Leverage is Gone for Good

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Friday, 03 Apr 2009 10:16 AM Current | Bio | Archive

Fortunately we haven’t seen our worst expectations met, but, except for the G-20 leaders’ promise for cracking down on hedge funds, tax havens and banks for a compensation price of $1.1 trillion economic bailout, the summit has, in my opinion, not succeeded in moving the agenda forward.

Nothing of any importance whatsoever was decided. There is no coordinated policy response. There is no detailed proposal of substance for financial regulation.

Maybe doing more was probably impossible. Bottom line: We now must go back where the respective decisions will be taken, which is at home in every single country.

In my opinion, then, the G-20 summit will not mark a “turning point” in the path of this crisis.

In this context, it’s interesting to take notice, as a demonstration of non-coordinated actions, that at the very same time when the G-20 was writing its final communiqué, the European Central Bank (ECB) decided to do less than half of what was expected, announcing a 25 basis-point cut.

Afterwards, at the press conference that followed the decision, bank president Jean-Claude Trichet gave a well-remarked but vague promise that the ECB would be “looking at” unconventional measures at their next month’s meeting.

More and more central banks are opting for the radical policy of quantitative easing. This could possibly relate to concerns about the impact upon the EUR, given the risks that the single currency could become favored as a default store of value, which is certainly not on Europe’s wish list now.

When questioned about the risk of deflation, Trichet said he expected the Eurozone would not face a deflation threat. Notwithstanding, he admitted Europe could see in the coming months “negative” inflation, which he calls “disinflation.”

I don’t know if the G-20 meeting has restored confidence. In my opinion, the global collapse of confidence that resulted from the crisis that started in the banking system will not be restored and resolved and until the banking system itself is fixed.

Keeping that in mind, as an investor, not as a trader, we will have to take into account that levering as we have known and have profited from for decades won’t come back and has now definitively turned into de-levering. Lax regulation will without any doubt turn into strong re-regulation, credit risk premiums and consequently risk premiums for equities are definitively bound higher while higher volatility will be with us for some time to come.

For all these reasons, as an investor and not as a trader, I would remain extremely prudent before considering investing now. I still expect lower asset prices for a majority of asset classes. The better opportunities are not here yet. I would remain patient.

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HansParisis
Fortunately we haven’t seen our worst expectations met, but, except for the G-20 leaders’ promise for cracking down on hedge funds, tax havens and banks for a compensation price of $1.1 trillion economic bailout, the summit has, in my opinion, not succeeded in moving the...
g20,summit
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2009-16-03
Friday, 03 Apr 2009 10:16 AM
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