Dieses ist nur ein kleiner Ausschnitt von Hussman´s letzten Werk Expecting A Recession . Nebenbei bemerkt habe ich das wort "contained" schon lange nicht mehr gehört.......
Industry groups: rotating disappointments
It's interesting that investors have not yet put the rotating disappointments among various industry groups into a “gestalt.” Rather, investors seem to be looking at various industries as if their problems are each somehow unique and unrelated. Investors recognized early that the housing sector is profoundly vulnerable. More recently, they have recognized that financials face growing loan loss risk. With Caterpillar's disappointing guidance, they suddenly realized that cyclicals and machinery face significant challenges. With Exxon's refining difficulties, they realize that profit growth in the oil sector is unlikely to produce major upside surprises. And last week, technology stocks were clipped when Cisco produced strong earnings but didn't raise guidance. Yet somehow, investors haven't put all of these together to see the larger picture, which is that the market has lost leadership from every important group. This isn't a stock-selection or an industry-selection issue. It is a pervasive indication of oncoming economic risk.
It's interesting that investors have not yet put the rotating disappointments among various industry groups into a “gestalt.” Rather, investors seem to be looking at various industries as if their problems are each somehow unique and unrelated. Investors recognized early that the housing sector is profoundly vulnerable. More recently, they have recognized that financials face growing loan loss risk. With Caterpillar's disappointing guidance, they suddenly realized that cyclicals and machinery face significant challenges. With Exxon's refining difficulties, they realize that profit growth in the oil sector is unlikely to produce major upside surprises. And last week, technology stocks were clipped when Cisco produced strong earnings but didn't raise guidance. Yet somehow, investors haven't put all of these together to see the larger picture, which is that the market has lost leadership from every important group. This isn't a stock-selection or an industry-selection issue. It is a pervasive indication of oncoming economic risk.
With regard to financials in particular, investors continue to look for a bottom. Aside from periodic short squeezes and spectacular but short-lived rebounds, I don't think it is coming anytime soon. The recent concern about higher loan losses is no surprise (see The Problem with Financials), and this is likely to continue. This is not simply a problem that will go away if various financial companies “come clean” with what their CDOs and so forth are worth. The real problem is that the companies don't know what they're worth because the foreclosures that will determine their value haven't happened yet. The defaults are just starting. The heaviest round of mortgage resets only started in October, so it will probably be months before we observe mass delinquencies, and several more months until we observe significant foreclosures, loan losses, and writeoffs. This is a multi-year problem, not a multi-week problem that can be resolved by “just coming clean” with what's on the balance sheet
According to the latest FDIC banking profile, FDIC insured institutions currently hold a notional value of $153.8 trillion in credit derivatives. That's not a typo – though GDP itself is only about $13 trillion, the high notional value emerges because for each derivative that connects two true “end users” (one long, one short), there is a whole chain of intermediaries who are long with one intermediary and short with another, hoping to earn a tiny profit on the spread. For example, I buy a derivative from Andy, who goes short to me, so he buys one from Barry who is short to Andy, hopefully for a tiny spread, and covers the risk by buying a derivative from Charlene, and so on, until someone finds a true “end user” who actually wants to carry a pure short position in that derivative. Unfortunately, this also exposes banks to as-yet-unknown “counterparty” risk. If one link in the chain snaps, the links surrounding that chain have to bridge the gap. This is not a material risk in exchange traded derivatives, but can be a problem in “over-the-counter” derivatives traded between banks, where “know thy counterparty” currently ought to be chiseled into every marble surface.
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