Global Recession Warning Bells Ring as Indicators Suggest a Repeat of 2008
2007 was an unforgettable year for global financial markets, for all the wrong reasons. The sub-prime crisis in the USA wreaked havoc far and wide across the globe, with some effects felt even to this day. Such was the magnitude of the catastrophe that investment firms, market researchers, government appointed economic watchdogs and market analysts now very keenly watch out for indicators that preceded the crash of 2007, to know when to fear for the worst.
Those ominous indicators have begun to unmistakably sound off alarm bells, in the past few weeks.
Rapidly contracting liquidity and interest rate woes in America
The Federal Reserve has resorted to a desperate two-pronged crisis measure of both spiking interest rates and also downsizing its balance sheet. With a 4th interest rate hike in just a year and downsizing at a frightening rate of $50 Billion USD a month, liquidity is being sucked out of financial markets. US Blue Chip debt yield has spiked a full 100 basis points, to 4.34%, a level last witnessed a decade ago.
Nosediving M1 Indicator Patterns
M1, the critical metric used to measure liquidity available to non-financial firms is spewing out steep falls over the past few weeks, both in America as well as across the world.
- M1 turns negative in the USA. The last time it happened was just before the spectacular Lehmann collapse
- M1 falls below 5% for 14 of the largest economies in the world. The last time it happened was again just before the 2008 world financial debacle
American Leveraged Loans Witness Price Drop Eerily Similar to 2008
The American leveraged loans market, a behemoth worth $1.3 Trillion, has witnessed a colossal price drop in the past few weeks, from almost parity to just 93¢ on the dollar.
Europe in Crisis
Italy stands precariously poised, with analysts agreeing that the slightest of external shocks is capable of bringing its economy to its knees. Italy’s banks have essentially been shut out of capital markets.
Several other European Indicators Spell Recession Worries
- ECB altogether suspends purchase of company debt, a trend rapidly being adopted all across Europe
- European Banks continue to suffer staggering market capital erosion, already down 30% this year
- Europe reels from President Trumps repatriation of $500 Billion USD
- Volkswagen struggles to issues a $5 Billion Corporate Bond in October
- Germany’s IFO Index, a measure on quality of business expectations, falls to a 4 year low
- LIBOR-OIS Spread, a metric that acts as a stress-gauge on European interbank lending balloons to 40 basis points, from just 17 a mere three months ago