Cluster Family Office Blog

Monday 27 August 2007 – it has now been a couple of weeks since the major tremors in what has come to be known as crisis subprime. To date, mere aftershocks of the crisis, high volatility, erratic stock markets and various news stories along the same lines: «It is still too early to gauge the extent of the mortgage crisis», «We need to monitor how the markets develop», etc. Obvious truths framed within a moderate pessimism which, in my opinion, reflects the actual situation quite accurately. Of course, I won’t even go so far as to comment on the sensationalist voices seeking the limelight in the very style of a aquihaytomate financial, which has been very well described Rebuzner.

I believe that in the coming days we may see further sudden shocks to the financial system, and I am not referring solely to the stock market. Just when public opinion and the markets have become accustomed to the new situation, and it has been given a name that is more or less accepted by experts and laypeople alike, and it seems we can let our guard down or relax the state of alert we have been in over the last few weeks, a new shock usually strikes. Perhaps this won’t be the case and we’ll continue to heal, very slowly, the wounds caused by this globalised credit crisis, but I fear we may once again see situations that put the world’s central banks under renewed strain.

By this I do not mean to suggest that we are heading towards a chaotic or uncontrolled situation that exceeds the system’s capacity, in the very style of the sensationalist media outlets mentioned – not at all. It is simply that, in times of difficulty which are likely to drag on, it seems as though the bad news is being doled out naturally so that the entire global financial system can gradually come to terms with it. In this scenario, just as we begin to come to terms with the new realities and relax the muscles that were tensed by our reactions whilst reading the economic news, we must be prepared for further shocks. I do not know whether this is a universal law that regulates our capacity to cope with adversity or mere coincidence, but in the aftermath of a financial crisis such as the one we experienced this August, it seems that: No news, bad news.

It is possible that the sporadic fluctuations we may experience over the coming days are nothing more than minor aftershocks of the initial earthquake, and therefore we should not envisage a scenario different from the one we have already accepted globally. It is even possible that we will not experience any significant aftershocks at all, and that the credit crisis will gradually but orderly subside throughout our system. But precisely in order to avoid unnecessary and dangerous panic, we must be prepared for some unpleasant surprises in the coming days. And rather than whingeing or proclaiming the end of the world through the media, let us continue to adjust our scenarios as necessary and seek out and find excellent investment opportunities. Bad news, good opportunities.