A man watches the trading board at a private stock market gallery in Kuala Lumpur, Malaysia. Asian markets mostly fell Monday as investors reacted to Greece’s sound rejection of terms set by its international creditors. AP
I wrote an article last December warning of a coming world economic crisis. It said the trigger could be the fiscal problems in Greece. A default may shock Europe, but it will plug the leak, temporarily. Then after the calm may come the crash. (See “Is another global financial crisis coming?” Inquirer, Dec. 8, 2014.)
Greece is on the ropes, as predicted. As this is written, Greeks are scrambling for cash as a third of their ATMs are now empty.
I argue that a global crash is not imminent, but it may follow later, perhaps around September. Europe will be shaken after the default of late June. It will end up pouring in money to fix the Greek mess. It will do as it fears a repeat of the Great Recession and does not want Greece to fall into the arms of a wooing Russia. In the meantime, spooked investors pull much of their money out of stocks and put them in safer bonds (basically IOUs to governments and corporations). Over the next months, investors realize that the bond market itself is fragile. Confidence goes into free fall.
Bond market warning signs
BUSINESS
BUSINESS
BUSINESS
Take a look at the warning signs in global bonds. The backdrop is that the market has been inflated by the quantitative easing (QE) program in the US and Europe. Under QE, central banks “print” massive amounts of money to buy long-term bonds.
Last May, Bloomberg quoted billionaire Warren Buffett as saying that “bonds are very overvalued.”
