- There are a couple of new stories suggesting that the sharply rising subprime loans foreclosures may be a signal of more troubles ahead: MoneyWeek article and Bloomberg article warn about more bad news to come, Morgan Stanley Global Economic Forum post states that fears may be overblown. You can also watch the webcast of the Goldman Sachs housing conference or read key notes on Paper money blog.
As always you have a variety of views and only the time will deliver the answer to questions, how bad it can get, will it be isolated or will other sectors feel the pain? Can credit derivatives risk materialize triggered by housing market situation?
- There is an interesting article in The TimesOnline on February 12, by Anatole Kaletsky. Quote:
“Turning to the pricing of risk in the markets, the big event of last week was not the G7, but a well-sourced story in China’s Southern Weekend newspaper, reporting that the Finance Ministry had approved the creation of a new institution, the State Foreign Exchange Investment Corporation, to manage China’s $1.1 trillion of foreign exchange reserves.
These reserves, growing by nearly $200 billion a year, have so far been managed by a department of China’s central bank, the State Administration for Foreign Exchange, and invested almost entirely in government bonds and other low-yielding but supposedly risk-free assets.
The new State Foreign Exchange Investment Corporation will have a very different mandate, including a diversity of assets such as overseas shares, and perhaps even property and direct investments in the West. Reportedly, an initial $210 billion in equity investments has already been approved. If the reports are correct, this could represent a sea change in global markets, and especially in the relative valuations of bonds and equities. …..
… China’s decision to shift part of its reserves from bonds to equities could prove far more important to markets than anything on the G7’s agenda.”