Tuesday, October 14, 2008
Time to Take Stock
Phew, it's all over....or is it? Central Banks around the world have conspired to pump some liquidity back into a market that had completely dried up. These facilities, most of which are swapping arrangements, swapping government debt of mortgage backed securities are design to rid the market of the 'toxic' MBS and CDOs and everything else that has been clogging up the system. It's a good idea and it needs to be done, but does it put the debt and equity markets back on track? In my opinion no. It is necessary, but it doesn't change the fact that the world is/was massively over leveraged and needs to de-leverage. It will takes months to get the liquidity and confidence back in the markets. Equity markets may rally for a week right now, but that doesn't mean it's time to dust of the margin lending account and get straight back to it. It's time to identify strong macro economic themes that will drive the global economy forward. What goods are people going to need in the future? Which goods will they need more of and who is best placed to benefit from this?