Stock markets closed higher today, Monday, July 30, 2007
Global investors woke today with the bruises and blinding headaches of binge-drinkers after last week's wild-west bar-fight. In the heat of the action, the bartender left the saloon, and withered LBO prospects hid behind the piano and watched sullen credit markets shoot up the liquidity cabinet. The sheriff made himself scarce, and the undertaker, who has seen it all before, waited patiently at home. Another Saturday night in Boomtown.
Dad-blamed credit markets. A Wall Street Journal article this weekend said delinquencies are increasing in commercial REITs now, due to shoddy lending practices that led to overvaluation that led to borrowers loaded with more debt than they can repay. Mount a posse. Somebody find that bartender.
A CNN headline this morning: "The end of the credit party. The once-endless stream of cheap credit is starting to dry up; buyouts, corporate deals take a hit." Investors and the media no longer turn a blind eye to the chance of lead poisoning from risky-debt moonshine.
Wall Street's bad case of the shakes has a bunch of heavy-drinking customers nervous. In the U.S. and Europe, corporations have postponed plans to finance a long list of takeovers by selling billions in loans. It seems the passion for M&A activity has cooled faster than news travels about a small-town case of the clap.
So far, the cyclic drama of financial binge-and-bust remains popular. Not even prohibition changes behavior, but China tried again today to ease the pressure in its massive bubble. For the sixth time, it tightened credit by ordering banks to increase lending reserves. China's main stock market has only quadrupled since January.
Though it might appear so, this credit tightening and fear of risk are not the causes of this latest bust. They are effects of something bigger. The driving force scripting this entire drama is the patterned nature of social mood.
The Elliott Wave Financial Forecast has long observed the psychology behind the expanding credit bubble, and was alone for a long time in describing how it would end. No longer:
"…these events provide a glimpse of a weakening state of affairs and a turn toward a more conservative mood. Stocks may muster one more rally, but the larger liquidity bubble of the past 5 years appears to be drying up… at this point we are not alone any more in seeing the swamp of rotting debt for what it is. The impending credit implosion will directly lead to deflation, the central thesis of Conquer the Crash." (July 2007 Financial Forecast)
Respectable proprietors are trying to clean up and re-stock the saloon, hoping for more Saturday night rallies. But you know how it goes when liquidity dries up… everybody heads for those swinging doors.
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