Hows And Whens Of A Liquidity Crisis
Bill Gross of Janus Group, like many of us, is concerned about the recent turmoil in global financial markets.
The banks are hobbled in their market activity by more stringent regulation since the Y 2008 financial crisis, so a liquidity crunch represents a real danger, he writes in a commentary.
The Big Q: What could trigger such a crisis?
The Big A: A central bank mistake leading to lower bond prices and a stronger USD; the Fed raising interest rates in September: Greece, default/restructuring will lead to more worries for weaker Eurozone economies; China, credit has expanded more rapidly in recent years than any major economy in history, a sure warning sign.
“Chaos theory suggests that a small change in non-linear systems could result in large changes elsewhere,” Mr. Gross writes. “Call this kooky, but in a levered financial system, small changes can upset the status quo.”
So, given the volatility in global markets, how should we participants react in here with the Greek crisis, sell all our financial assets and exit the market?
The Big Q’s for the average investor is how do you react, and what portfolio adjustments do you make?
The best answer is, this perhaps Greece no longer matters very much to most US investors, as only $14-B of Greece’s $350-B debt is owed to US banks, and that banks in general have curbed their lending to Greece over the past few years, and investors have largely steered clear of Greek stocks and bonds.
Have a terrific holiday weekend.
HeffX-LTN
Paul Ebeling
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