The strategy notes from bank analysts just keep getting more bearish.
We can say this because “European Strategy Weekly: The end of the world as we know it” has landed in our inbox this morning, from Nomura.
With markets behaving the way they are, rationalising such extreme movements with economic or corporate fundamentals is virtually impossible. Risky financial assets have effectively ceased to be discounters of likely future economic events.
While it is always theoretically possible to invent an economic scenario to justify current prices, the scenario that would now be required necessitates policy failure on a scale not seen since the 1930s.
And from Barclays:
This first “Neo-Modern Credit Correction” is nowhere near its conclusion. Equity bottoms/spread peaks/peripheral currencies lows reside in the future. The IMF’s just been summoned from a decade-long sabbatical. Further negative surprises lie ahead. The further translation of these capital market downdrafts into an economic floor will be observed over the next 3-4 quarters. Our point: the apex of the fear, the anxiety, and the uncertainty will be recalled as having occurred in September to mid-November 2008. And so will the pace of higher risk repricing.
This is not the end, but could well be the beginning of the end of the worst.
Which is about as cheery as things are getting.
And while we are looking back historically, perhaps worth republishing, at this juncture, is the below graph, of credit market size relative to US GDP, over the past century (previously featured in the Hayman fund letter to investors).
