Investors Are Chowing Down on the Stock Market Again

According to the press reports, three things helped investors chow down again this week.

First, Chinese stocks took off. After a brief and feeble panic-attack a couple of weeks ago, the Shanghai stock market is as fat and happy as ever. The index is nearly in record territory again.

Second, a whole new selection of merger and acquisition targets was added to the menu. How could investors resist? All that delicious, syrupy, rich sauce floating around! There is even talk of a major acquisition in the gold mining sector. Barrick is said to have its eye on Newmont whose shares are expected to bring in the mid-50s.

And third, investors are coming to terms with the whole subprime issue. Tim Harris, a strategist at JP Morgan, put the matter in perspective:

“It is estimated that the U.S. mortgage market is worth some $10,000 billion, approximately 10 percent of which is cumulatively classified as subprime; 12-15% of which may be in or approaching distress/default.”

No biggie, in other words. But wait! Ten trillion dollars is still a lot of money. And 10% of it is still $1 trillion…and 15% of $1 trillion is still $150 billion. Who’s got $150 billion to lose?

And the problem – again, according to the press – is the risks now overflowing into other segments of the mortgage market – notably into Alt-A and Jumbo loans. The same stretch for profit that led lenders to make loans to people who couldn’t pay them back…led investors to buy the loans packaged as debt-back securities…along with high priced stocks in a communist country…and a great deal more. They will keep stretching until something snaps, we figure. Maybe it already has.

Time will tell.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

Leave a Reply

Be the First to Comment!

Notify of
avatar
wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au