‘The next crisis is not likely to be another Lehman, but another Japan — a widespread zombification of global economies to avoid the pain of a large repricing of sovereign bonds, which leads to massive tax hikes to pay the rising interests, economic recession, and unemployment.’
That’s how Daniel Lacalle, chief economist and funding officer at Tressis Gestion, sees the next market mess unfolding.
“In the past 50 years, we have seen more than eight global crises and many more local ones, so the likelihood of another one is quite high,” he wrote in a recent piece. “Not just because of the years passed since the 2007 crisis, but because the factors that typically lead to a global crisis are all lining up.”
Those elements embrace complacency, extreme risk-taking and the perception that THIS time, it’s totally different.
“The 2007–2008 crisis did not start because of Lehman,” he wrote. “It was just a symptom of a much wider problem that had started to cause small bursts months before — excess leverage to a growth cycle that fails to materialize as the consensus expected.”
Lacalle defined that this time round, contagion is rather more troublesome in mild of the classes discovered from the Lehman debacle. Stronger mechanisms are in place to keep away from a domino impact in the banking system. Instead of a sudden bursting of the bubble, he says “global stagnation” and a gentle decline in asset costs, which is already underway, might finally lead to a full-blown crisis.
“When will it happen? We do not know, but if the warning signs of 2018 are not taken seriously, it will likely occur earlier than expected,” he wrote in his submit. “However, the governments and central banks will not blame themselves; they will present themselves — again — as the solution.”
Certainly no signal of the unraveling in Wednesday’s session, which noticed the Dow Jones Industrial Average
surge about 500 factors. The Nasdaq Composite
fared even higher with a 2.three% rally.
Providing important info for the U.S. buying and selling day. Subscribe to MarketWatch’s free Need to Know publication. Sign up here.