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Lehman and the coming Global Recession

Posted by fairval on September 17, 2008

When the music’s over…

Since the post of 25 Aug, where we wrote Indian markets are ignoring a lot of bad news floating around in global markets, the following has happened —

– Fannie, Freddie nationalised
– Lehman gone
– Merrill acquired

But the worst is not over yet..
– AIG, Washington Mutual in deep trouble
– There have to be some European names in trouble
– Global recession — talk of this has not acquired centre stage, atleast as far as i can make out. In the 25 Aug post, we mentioned a Bloomberg survey which said there was a 50% chance of a global recession. What is the chance of that now? One would imagine 60-70%.
– Malaise spreading to other parts of housing market. Washington Mutual is in trouble becos of ARMs – adjustable rate mortgages. That is one step above sub prime. Apparently in the US market, Fannie and Freddie were the most responsible lenders. If they had to be nationalised, there is a lot of muck still out there in the US market
– One article recently mentioned that 25% of US households are below the ‘fuel poverty line’. They dont have enough money for their fuel needs. Thats a new one. What does this mean? What about snowballing credit card debt defaults?

My sense is – the central theme for analysts and money managers now should be —
– what happens if there is a global recession.

Punita Sinha wrote yday in Economic Times ‘time for momentum investing is gone. Back to basics now’. True.


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