Dec 12, 2008|
US auto bailout plan collapses
Asian markets have crashed this morning, led by indices in Hong Kong (down 6%), Japan (4%) and Singapore (4%). This follows the failure of the US automobile industry bailout plan. This has dealt a severe blow to the fortunes of the Big Three auto companies in the US - GM, Ford and Chrysler, who were looking for the bailout plan to pass to help them survive. "Millions of Americans, not only the autoworkers, but people who sell cars, car dealerships, people who work on cars, are going to be directly impacted. It’s going to be a very, very bad Christmas for a lot of people," writes CNN. The industry that defined the US industrial strength is now facing a bleak future, with the Big Three staring at bankruptcy. The failure of the bailout plan is also expected to lead to a surge in US unemployment, which is already at its highest in fifteen years.
Hedge Funds shrink by US$ 64 bn
"A pin lies in wait for every bubble and when the two eventually meet, a new wave of investors learns some very old lessons." - Warren Buffett. This time, it was the turn of a tribe whose members call themselves hedge fund managers. As per Bloomberg, the global hedge-fund industry lost US$ 64 bn of assets in November 2008. The market decline contributed to US$ 18 bn in net losses, while investor redemptions accounted for the remaining US$ 46 bn. The hedge fund assets, which had peaked at US$ 1.9 trillion in June 2008, lost most of the corpus due to distress selling and the rollback of debt-funded investments over the past two months. While the global economic crisis continues to erode funds, investors in the poorly ‘hedged’ funds seem to have more to lose as the largest economies in the world such as US, Europe and Japan fall into simultaneous recessions for the first time ever since the Great Depression.
'NICE' era reared trouble
The RBI governor Dr. Subbarao in a recent speech on the global credit contagion explained the relation between the crisis and the globalisation of trade and labour. In a very interesting remark in his speech, the governor called the 'NICE' era as the prime culprit for the global recession. Ironically, the 'NICE' era - a term coined by Mervyn King, governor of Bank of England - referred to the period of greed across global economies that ultimately led to the creation of several asset bubbles.
First, there was the globalisation of labour. Emerging Asia added nearly three billion to the world pool of labour as it integrated the world through the 1990s. What this did was to reduce production costs at the aggregate level and increase Asia's comparative advantage. While the Asian economies (particularly China and to an extent India) piled up trade surpluses, these were mirrored by current account deficits in the US. The resulting imbalances that generated easy liquidity and low interest rates encouraged under-pricing of risk and deterioration in credit quality. Thus the 'non-inflationary consistently expansionary' (NICE) era fooled market participants into believing that the benign economic conditions were here to stay while the underlying value of assets kept getting eroded. Yet another instance of market punishing the ones enamored by greed.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407