945 billion in Q1–Q4. Almost a trillion euros, or a quadrillion US dollars – whichever sounds more impressive. These are the potential figures that have been calculated as losses caused and likely to be caused by exposure to the US mortgage market and related structured products. Of these, only a quarter have materialised to date. However, if, and only if, the data from IMF are reliable, we are seeing the light at the end of the tunnel. We said as much back in September, just after the credit panic of August that some saw as the end of the system, although since then the global economy has been in freefall. But now it is no longer an optimistic blogger in the midst of a summer slump saying this, but the IMF. The light is far off, the exit is at the 945,000-kilometre mark, and in all likelihood many will fall by the wayside. But it has an apparently quantified end.
I’d recommend that those of you who haven’t done so yet take a look at the summary of the IMF report a 28-page booklet in Spanish with video included. It is, after all, just one opinion among many that have been written in blogs and newspapers – whether right or wrong, chaotic but always FREE. In the case of the IMF, it is an official version set out and quantified in black and white, and far more realistic than the political accounts that have been put forward to date. This report should be taken with a pinch of salt (like all of them), but its publication is welcome. Someone had to do it.
As we have already said, fear of the unknown is far more damaging to the confidence required in the economic system than fear of known figures and timelines. Furthermore, although the banking crises and the emergence of subprime loans seen to date are merely the tip of the iceberg, the market has probably already priced in well over half of this crisis.
Clearly, RV is the least affected by this discount, but perhaps it is the well where the investment flow from the RF has sought refuge. Who would have thought that the RV could ever be considered a place of refuge, right?
Some might wonder: How can the stock market be said to have attracted capital inflows if it has been falling for several months? The answer is that given the current situation – that is, the mistrust surrounding the RF, the credit system, with commodity prices hitting record highs, etc. – the stock markets should have fallen much further. Confidence has not completely deserted the stock market just yet.
This equity market safe haven is a much wider and deeper well than that of the bond market, meaning its potential to absorb inflows from commodities and bank deposits remains enormous. Consequently, the bull run in equities could be spectacular if confidence returns to the system, something which, on the other hand, seems unlikely in the short to medium term.
As we have already seen, the lack of confidence in the economy does not necessarily mean that stock markets will fall further. In a scenario of widespread mistrust, we should have seen much steeper falls in the stock markets. But that has not been the case so far, and the question is: what else needs to happen for the stock markets to plummet, continuing the trend that began on 21 January this year? I shall not be the one to venture an answer to that question, but what seems clear to me is that, like so many absolute truths that the crisis has rendered obsolete, confidence and the stock market no longer go hand in hand. We’re certainly not doing well, though an optimist on the lookout for opportunities might say we’re taking a different approach, and perhaps they’d be right.
P.S. Today marks the start of the Rankia’s Series of Talks at Forinvest. Don’t miss tomorrow’s session from 5.30 pm to 7 pm with Fernando Calatayud (Investment, Speculation… and my own thoughts) y Dimitri Uralov (Family Office) on the property bubble, the subprime crisis and a analysis of the current situation and its future prospects. We look forward to hearing your comments and questions.