This posting is from D&S collective member and frequent blogger Larry Peterson. To see more of his posts, click here.
Markets are rallying big time (as is oil, up 11% as the Saudis seem to have cut supply), no doubt encouraged by prospects of change–of any sort–from the policies of the current administration, but particularly if Obama wins, on this election day. But a number of items in the news urge severe caution. I’ll give links to the essential stuff and provide a few tidbits.
First, the domestic economy. Domestic manufacturing, and especially automaking, is in a slump the likes of which hasn’t been seen since the severe hollowing-out of US manufacturing in the early ’80s. And that wwith the automakers offering desperate discounts.
Next up: finance. The Financial Times reported today on the fall of the collateralized loan market (remember collateralized debt obligations?). Combined with the difficulties of private equity, which D&S re-posted an article about yesterday, and continuing problems in shipping finance, which Yves Smith posted about, there are loads of reasons to be worried on this score, even as interbank markets show impressive signs of recovery and corporate earnings surprise on the upside. Commercial paper issuance, however, fell.
Meanwhile, on the regulatory front, the Treasury appears set to purchase stakes in more firms, even those outside the banking and insurance sectors, and may purchase distressed assets directly, rather than through auction. The International Herald Tribune had a piece on what a secretive process the disbursement of funds to financial firms is turning into.
Finally, on the international front, the Financial TImes’ Lex column had a disturbing piece on the possible next shoe to drop in Asia, Japanese and Korean medium and small enterprises (it’s a very short piece, and well worth reading); and Nouriel Roubini has some gloomy thoughts on the ability of China to rapidly turn into a demand-led economy, and whether the rapid decline in Chinese economic indicators presages a hard landing there.