As if a surprise, The WSJ reported yesterday that those who were worried about CDO ratings at Moody’s (and likely the other agencies) turned out to be correct, and if those with decision making authority had listened to their warnings some of the ongoing market turmoil could have been averted.
This is surely correct in hindsight, and judging from the many commentators who anticipated the cracks in the credit system, perhaps one should shake a finger at those responsible for ignoring such pleas.
At the same time, it is difficult to predict the future with any consistency, and if the current market volatility and conflicting headlines tell us anything it is that a lot of smart people disagree about the next step in the cycle from this point.
One highlight of this increased uncertainty (besides the stomach wrenching moves in the major indices last week) are the massive volume increases in the derivatives markets over the last quarter as reported by Bloomberg here: Exchange Traded Derivatives Rise 30% to $692 Trillion, BIS Says.
The notional value of over the counter credit derivatives has now approached $600 Trillion, a number I cannot comprehend, but as most of you know, this amount overstates the impact this market has on investors as what matters are the fluctuations in this exposure. This equates to a lot of smart money vigorously disagreeing with one another.
My own take is that with the price of oil and commodities continuing to move up as the dollar continues to buckle, it seems very difficult to posit a scenario where consumers are not squeezed to the breaking point under these and credit strains over the coming months. In plain English: it seems that the real people underlying this financial mess will likely continue to have hard times in the short term which isn’t a good sign for those who make money by selling and financing stuff to them.
My eyes remained focused on technology, efficiency and mobility as innovation points to lead us forward out of these tough times.