Friday, 8 July 2016

This week's fear-mongering headlines!

1) Italy's banks are burdened with a massive US$400 million worth of bad loans, which is highest in the EU by far. This hinders the banks' ability to provide credit to businesses, which in turn will affect the economy, leading to a vicious cycle. The Italian government could try to do a bailout but they are strapped for cash too. The Italian government debt level is the second highest in the EU after Greece. Furthermore, any attempt to carry out a bailout will likely run foul of certain EU central bank's regulations. Italy seems like the new weak link in the EU, bringing back the Grexit contagion fears. By the way, Greece is barely surviving too.

2) The systemically-critical Deutsche Bank never truly recovered from the 2009 financial crisis. Things are now in 'full-crisis' mode. Worse still, the recent Brexit will hit the bank hard. Deutsche Bank is the largest European bank in London and receives 19% of its revenues from the UK. Now the real question: what happens to Deutsche Bank’s derivative book, which has a notional value of €52 trillion, if the bank becomes insolvent? Financial Armageddon might be near......

3) With the sterling pound under severe pressure due to Brexit, three of the biggest commercial property funds in the UK have stopped redemptions. Investors are running towards the exit in herds. As more investors panic and do the same, the funds will have to sell more properties to meet the redemption demands. Usually the most-saleable and best properties will be sold first. This creates a vicious cycle as investors do not wish to be the ones still remaining in a fund which holds inferior properties in the end. This scenario brought back horrifying memories of how the 2008 GFC started. Dominoes started to fall when panicky investors started redemptions on two hedge funds from Bear Stearns.

This might become a regular thing on my blog seeing that there are always a few fear-mongering headlines from the mass media. Now I understand why people like Marc Faber are often pessimistic about the global economy. It can be rather fun in a morbid way. Ha!  >___<

Many of us are not living our dreams because we are living our fears


  1. Replies
    1. Thanks for pointing it out. Correction made :)

  2. 2016 is the year of the monkey and the economy is also behaving like a naughty monkey, giving us one crises after another. But hor, life still have to go on. Cheers.

    "Be greedy when others are fearful and be fearful when others are greedy." -- Warren Buffett

    1. Hi Arthur,

      Yup...this year has been full of ups and downs. The world seems to have become a rather uncertain place. But the tough keeps on going!:)