Homepage
PR Newswire
20-11-2014, 11:03 PM
World ‘lurching towards another market crash’, warns academic
THE AUSTRALIAN NOVEMBER 21, 2014 12:00AM
John Ross
Higher Education Reporter
Sydney
Stock markets plummet after an average of five years of steady economic growth, says Arturo Bris Source: News Limited
AUSTRALIA’S real estate bubble is the “biggest in the world”, adding to the risk factors that are propelling the global economy towards a crash that is due — statistically speaking — in just five months, a European finance professor has warned.
Professor Arturo Bris, who heads the World Competitiveness Centre at Swiss business school IMD, told a Singapore forum the world had become so flush with money that people were paying “crazy” prices for real estate and stocks, and some companies had enough cash on their books to buy entire countries.
Elaborating on predictions he made in June, he said present settings pointed to the continuity of a cycle that has seen the world afflicted by economic crises every six years, on average, since World War II.
The cycle involved roughly 58 months of steady economic growth followed by 11 months of free fall, he said.
The pattern included the Latin debt crisis of 1982, the US savings and loans crisis, which started in 1986, the 1991 Indian economic crisis, the burst of the internet bubble in 2000 and the 2008 Lehman Brothers collapse.
Professor Bris said there were positive signs for the global economy, with the G20 committing to growth, stockmarket indexes rising, a resolution to the European debt crisis, the success of quantitative easing in the US, and economic reforms in countries like India and Brazil.
Nevertheless, his analysis suggested the next crisis point could be expected around April.
“We need to prepare our mindset for what is going to happen next year, because — statistically speaking — things do not look so rosy,” he said.
Professor Bris said Japan’s unexpected plunge into recession this week could be the “black storm” that signalled the next economic crisis was imminent.
It was impossible to say exactly when the crisis would hit, or what would spark it.
He highlighted five “risk factors”: access to cheaper oil and gas; the real estate bubble; a parallel stock exchange bubble; Chinese lending; and a tendency for leading corporations to accrue huge sums on their balance sheets.
He said cheaper methods of energy production could spark a geopolitical crisis, with countries such as Russia and Saudi Arabia liable to respond forcefully against threats to exports, while the real estate and stockmarket bubbles could stimulate something similar to the subprime mortgage crisis.
Two indicators in particular suggested that the stockmarket was in dangerous territory. Excessive cash levels had produced a “buy” mentality, reducing volatility to a level last seen just before the Lehman Brothers collapse. And a yawning disparity between what corporations earned and what they commanded in stock prices was similar to gaps that had emerged at the peak of the dotcom boom and just before Lehman “exploded”.
Professor Bris said the amount of money on some companies’ balance sheets was comparable to the value of entire countries, calculated by applying a typical sales multiple to the country’s GDP and subtracting national debt. By that measure, Citigroup had enough ready cash to acquire 51 per cent of Italy, which Professor Bris valued at $US840 billion ($977bn). Apple could buy a majority stake in Israel and Cisco could purchase Portugal, he said. “A bank that employs maybe 30,000 people could buy a country with 50 million — it shows the magnitude of the problem.”
These levels of cash would send economies into meltdown if they were suddenly released into the markets. Similarly, China could destroy the American economy by suddenly selling off US bonds.
Professor Bris said Chinese lending was the biggest risk factor of all, with “humungous” sums concentrated in a few poorly governed banks. “The next Lehman Brother will be Lim Ma Brothers.”
The reporter travelled to Singapore as IMD’s guest.
THE AUSTRALIAN NOVEMBER 21, 2014 12:00AM
John Ross
Higher Education Reporter
Sydney
Stock markets plummet after an average of five years of steady economic growth, says Arturo Bris Source: News Limited
AUSTRALIA’S real estate bubble is the “biggest in the world”, adding to the risk factors that are propelling the global economy towards a crash that is due — statistically speaking — in just five months, a European finance professor has warned.
Professor Arturo Bris, who heads the World Competitiveness Centre at Swiss business school IMD, told a Singapore forum the world had become so flush with money that people were paying “crazy” prices for real estate and stocks, and some companies had enough cash on their books to buy entire countries.
Elaborating on predictions he made in June, he said present settings pointed to the continuity of a cycle that has seen the world afflicted by economic crises every six years, on average, since World War II.
The cycle involved roughly 58 months of steady economic growth followed by 11 months of free fall, he said.
The pattern included the Latin debt crisis of 1982, the US savings and loans crisis, which started in 1986, the 1991 Indian economic crisis, the burst of the internet bubble in 2000 and the 2008 Lehman Brothers collapse.
Professor Bris said there were positive signs for the global economy, with the G20 committing to growth, stockmarket indexes rising, a resolution to the European debt crisis, the success of quantitative easing in the US, and economic reforms in countries like India and Brazil.
Nevertheless, his analysis suggested the next crisis point could be expected around April.
“We need to prepare our mindset for what is going to happen next year, because — statistically speaking — things do not look so rosy,” he said.
Professor Bris said Japan’s unexpected plunge into recession this week could be the “black storm” that signalled the next economic crisis was imminent.
It was impossible to say exactly when the crisis would hit, or what would spark it.
He highlighted five “risk factors”: access to cheaper oil and gas; the real estate bubble; a parallel stock exchange bubble; Chinese lending; and a tendency for leading corporations to accrue huge sums on their balance sheets.
He said cheaper methods of energy production could spark a geopolitical crisis, with countries such as Russia and Saudi Arabia liable to respond forcefully against threats to exports, while the real estate and stockmarket bubbles could stimulate something similar to the subprime mortgage crisis.
Two indicators in particular suggested that the stockmarket was in dangerous territory. Excessive cash levels had produced a “buy” mentality, reducing volatility to a level last seen just before the Lehman Brothers collapse. And a yawning disparity between what corporations earned and what they commanded in stock prices was similar to gaps that had emerged at the peak of the dotcom boom and just before Lehman “exploded”.
Professor Bris said the amount of money on some companies’ balance sheets was comparable to the value of entire countries, calculated by applying a typical sales multiple to the country’s GDP and subtracting national debt. By that measure, Citigroup had enough ready cash to acquire 51 per cent of Italy, which Professor Bris valued at $US840 billion ($977bn). Apple could buy a majority stake in Israel and Cisco could purchase Portugal, he said. “A bank that employs maybe 30,000 people could buy a country with 50 million — it shows the magnitude of the problem.”
These levels of cash would send economies into meltdown if they were suddenly released into the markets. Similarly, China could destroy the American economy by suddenly selling off US bonds.
Professor Bris said Chinese lending was the biggest risk factor of all, with “humungous” sums concentrated in a few poorly governed banks. “The next Lehman Brother will be Lim Ma Brothers.”
The reporter travelled to Singapore as IMD’s guest.
