To: marginmike who wrote (43147 ) 12/2/2000 1:08:03 AM From: patron_anejo_por_favor Read Replies (1) | Respond to Why financial stocks are the next to get their "turn in the barrel", from tonight's Credit Bubble Bulletin . A great read, perhaps Noland's best ever:prudentbear.com The world has changed. The manic period where simply absurd valuations were accepted in the technology marketplace is coming to an end. The great speculative bubble has burst and, as stated earlier, the ramifications are profound. At the same time, it should be a cause for concern that trillion of dollars of financial assets maintain their value (or even increase in value), despite the fact that inadequate true economic wealth backs these securities. Markets, however, have a tendency to rectify such imbalances, and often do it in spectacular fashion. Currently, money market fund assets have ballooned to $1.819 trillion, having increased $18 billion just last week. There are $1.7 trillion outstanding of asset-backed securities currently outstanding. Agency securities outstanding total $4.06 trillion. Of this, $1.7 trillion is GSE debt and $2.4 trillion is mortgage-backed securities. As of June 30th, there was almost $8 trillion of credit market debt owed by the financial sector. This amount has more than doubled since 1995, the epicenter of finance for the great U.S. financial and economic bubble. Of this $8 trillion, almost $1.7 trillion is borrowed by the Government-Sponsored Enterprises, and $2.4 trillion is mortgage-back securities. The financial sector has borrowed $1.1 trillion of short-term “open market paper,” and $2.2 trillion through bond issuance. The financial sector has also borrowed $437 billion of “other loans and advances.” Right here we see the fundamental problem that will hamper the U.S. financial system and economy for years to come: the U.S. financial sector has borrowed incredibly to take on enormous (speculative) positions in financial assets, and much of this has been borrowed from foreign sources. Foreign sources (we believe much of it leveraged speculations) have financed a bubble of reckless spending and squandered resources. The return on U.S. assets after such a fiasco will be particularly poor and problematic. Yet, as long as the financial sector continues to expand, this game can play on. However, confidence in the dollar, the U.S. financial system, the American economy must hold firm, although confidence – like liquidity – can be a frustratingly fleeting thing. Let there be no doubt, if there is any flight out of U.S. financial sector debt instruments – the U.S. credit system will freeze abruptly in illiquidity.
