Too Much Pessimism.

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The price of crude is down 28% this year, China’s (the world’s second largest economy and large share of the global demand for oil) economic growth and stocks slowdown, debt driven over capacity growing model in many sectors, and fear of global financial recession are sufficient to cause  investors pessimism and anxiety over growth in worldwide. We were concerned about high oil prices in 2007-8 when subprime mortgage crisis happened, but nowadays, we are worry about low oil prices. As it seems ironic that oil prices should be neither too high nor too low.  

As seen in Figure above, 5 Year Credit Default Swap (CDS)  spreads show that demand for protection from growing credit risks in emerging markets will continue increasing..Especially for Brazil, Turkey and South Africa are vulnerable to self-fulfilling investor pessimism. Unfortunately, The increase in CDS demand could cause investors getting to the panic stage and run from risky movements/ emerging markets.

As a result of this, emerging markets and stocks suffer from too much low oil prices.The China’s slowdown is expected to affect them differently compare to the rest of the world. I believe that emerging economies should focus on both economic revival and fiscal reform plans in order to provide sustainable growth and avoid risk of economic circumstances.

Once upon a time John Maynard Keynes observed that Professional investors are largely concerned, not with making superior long-term forecasts . . . but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it ‘for keeps’, but with what the market will value it at, under the influence of mass psychology. . . 

 

The Big Short – Jenga

 

When four outsiders saw what the big banks, media and government refused to, the global collapse of the economy, they had an idea: The Big Short. Their bold investment leads them into the dark underbelly of modern banking where they must question everyone and everything. Based on the true story and best-selling book by Michael Lewis (The Blind Side, Moneyball), and directed by Adam Mckay (Anchorman, Step Brothers) The Big Short stars Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt.

Source : Youtube  #recommended movie #oscarnorms #cds #tranche