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BBC: Stock market crash in Autumn

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by Brian Turner
”BBC:

A stark commentary by BBC radio business presenter Greg Wood suggests the real impacts of the subprime mortgage market will hit the stock market in September. And it won’t be pretty.

The claim centers on the profit reports from investment banks, starting with Goldman Sachs and the rest following close behind. According to Standard & Poor, the expectation is 50% wiped from their profits due to bad debt markets.

The main reason is that parcelled debt, a big commodity in hedge funds especially, have bombed in value, and many are now effectively worthless. The impact on investment banking is expected to be significant.

The main warning, though, isn’t that shares in investment banking companies could take a big hit.

It’s that historically, big jitters on the stock market are followed by a stock market crash.

August saw the jitters. Now it’s claimed we’re to see the crash.

Over the past three months, major investment banks such as Morgan Stanley – who issued a crash warning in June – as well as Goldman Sachs, Lehman Brothers, and others, have been counting the actual value of the debt they hold.

So far the stock markets have been jittery because the extent of the problem with debt markets remained opaque.

When the profit reports come out across September, some degree of transparency on exactly how bad the problem is should be revealed. And investors are unlikely to be forgiving.

This is especially as the toll in mortgage companies, small banks, and hedge funds, continues to increase daily.

Meanwhile, general market expectations of cuts in interest rates which would help save the credit market are likely to be dashed by food price inflation.

Here at FM we’ve long criticised the summer bull market. It’s time for the bears to come out of hibernation and bring a little more common sense to share prices, away from wild debt speculation.

Now is the time for hard realities. We need that, because we need to bring back some degree of balance to the economic cycle.

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News posted: August 30, 2007

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