Tuesday, 7 October 2008
"Carnage" On The Stock Market
As I have highlighted in previous article, the deleveraging process has started. Banks, Companies and others have to sell their holding to pay off their debt. They cannot take more debt to pay off debt. The illusion time has come to an end.
What is painful, it's the synchronization of the fall with the global slowdown.
How far can the stock market fall? could it go as low as in 2003 or even lower? we can't rule it out. Remember in 2003, the financial system was still in good shape and household were still heavily borrowing for purchasing house, cars, gadgets... Bankers were still smiling.
Today it's different.
The financial system has had an heart attack. House prices have soared to level incompatible with future earning and employment growth.
Interest rates will come down, but banks will not lend as before as they have been hardly hit by the crisis through lower stock market and higher margins. The impact will be that the amount of loan for house purchase will be below average and interest margin will be higher. This will prolong the downturn on the housing market until the financial system, worldwide become healthy and sound. It will take time, a decade? one cannot rule that...Bankers are not smiling any more.
Unfortunately, Finland has come in this downturn with highly indebted consumers albeit with budget surplus. As highlighted by the Bank Of Finland and the ministry of Finance, should the consumer start saving then matter will get worse. I think consumers will start saving, especially if unemployment rise, house price and stock market fall...
But will come a time - 2-5 years? -, when birds will resume singing and bankers will get back their trademark smile, then nobody will remember about the financial crisis...it will then be "business as usual".
Let's learn some vocabulary: London Stocks Fall 7%, Germany Sinks 8%, Paris Tumbles 8%, Helsinki nosedive 6% by Mid day -08.10.2008