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Banking

Bond Outlook April 30th

The central banks have done a good job on liquidity, but the credit squeeze, the US recession and inflation rather suggest the current calm is the eye of a storm.

Bond Outlook [by bridport & cie, April 30th 2008]

The eye of the storm: a moment of calm before the wind and the rain returns in full force. Is that where the US economy is now? There is a strong case for supposing so:

  • Housing is still in dire straights with falling prices, excess inventory and a bottom to the market two or three years away
  • The announcements of 1st quarter losses by banks on both sides of the Atlantic have been so commonplace that they are now almost ignored
  • Sub-prime losses may have been revealed by banks, but what about pension funds and insurers where transparency is practised less? What of Alt A (mortgages of quality between sub-prime and prime)? As housing prices fall mortgage delinquencies are climbing into better quality mortgages, but Alt A losses have scarcely been reckoned
  • US GDP managed a tiny increase in Q1, but that was due to inventory increases. That will lead to production cuts in Q2
  • Consumer spending is still growing, but at a slowing pace (0.7

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