World Markets Outlook

2010-04-29T23:20:00.000-07:00

World Markets have experienced a roller coaster ride in the last two years due to liquidity bubble followed by financial crisis created by over leveraged financial institutions. The expansionary and lax US Fed monetary policies grew the US GDP artificially while it encouraged financial institutions to take overly leveraged positions for short term gains. Between 2003 and 2007 approximately $5trillion pumped into the US and World economy in the form 0f home equity line of credits and real estate valuations and this money was pulled out starting in 2007 with the collapse of the financial markets.

So what is next?

These are some of the latest trends

The equity markets are recovering due to increased money flow from the US Fed that is trying to offset the credit crunch.
Commodities are showing the signs of bubble and there is where the next correction is expected.
European economies, PIGS are under pressure due to high debt/gdp ratio and increasing borrowing costs.
Chinese economy is white hot due to significantly, and artifcially, undervalued Yuan.

Shortly most world economic indicators are pointing at increasing interest rates and higher inflation rates in the coming years offset by bursting commodity prices and excess production capacity in most sectors.

Conclusions:

Watch for the Chinese economy to take short position on commodities.
Leverage low interest rates for long term capital investments.
Do not take overleveraged positions at anytime as credit will become scarce and more expensive in the long term.
Keep solid cash positions for good equity and real asset deals
Watch Euro as it entered a negative territory due to high indebted European states with expensive and unsustainable social programs.