In the previous bubble blog earlier in the week I wrote that G4 central bank balance sheets are expanding to a whopping 26% of GDP.
If you had bought emerging market stocks exactly at the top of the bubble and sold them exactly at the bottom of the crash, you would have suffered a lot of pain (and probably shouldn’t be in the investment business in the first place). The loss would have been 67 percent of your principal.
Ministers and bankers meeting at the European Bank for Reconstruction and Development‘s annual gathering in London tomorrow and Saturday have a sorry mess to scrutinise.
The world has experienced many crises in the past.
In 1636, during the Dutch Tulip Bulb Bubble, the quest for a perfect black bulb had inflated the price of a black bulb by many hundreds. In a different crisis in 1866, a London wholesale bank Overend, Gurney & Co collapsed with a massive debt, after expanding its investment portfolio beyond its means.
Financial markets might be in distress and stocks are falling through the floor, but according to James Montier, global strategist at Societe Generale, we are not in the final stage of bubble burst yet. For one thing, the Financial Times is still too big.
At a fund managers conference in London today, Montier — a renowned bear — noted a thesis by economists Hyman Minsky and Charles Kindleberger that bubbles go through five stages — displacement, credit creation, euphoria, critical stage/financial distress and revulsion.