We're Only Halfway Through the Credit Crisis

The IMF estimates that write-downs from the credit crisis will ultimately total $1 trillion.  So does Goldman Sachs.

If so, we are halfway there.

Banks' losses from the U.S. subprime crisis and the ensuing credit crunch crossed the $500 billion mark as writedowns spread to more asset types.

The writedowns and credit losses at more than 100 of the world's biggest banks and securities firms rose after UBS AG reported second-quarter earnings today, which included $6 billion of charges on subprime-related assets.

The International Monetary Fund in an April report estimated banks' losses at $510 billion, about half its forecast of $1 trillion for all companies. Predictions have crept up since then, with New York University economist Nouriel Roubini predicting losses to reach $2 trillion.

I think Roubini's estimate is too high, similar to those who predicted oil would go to $250 or that the Canadian dollar would go to $2 against the greenback.

If $1 trillion is the correct amount, then we are in the deepest point of the valley.  Markets will fall lower and the economy will slide further into recession, but investors should start contemplating the bottom of the market, which I believe will occur some time next year.

Comments

[Jan Steinman:]

But oil *will* go to $250, and the loonie *will* go to US$2! It's only a matter of time.

Sure, resources are down right now. But they keep making more people, but haven't figured out how to make more planets yet.

There will be ups and downs, but the long-term trend for resources is clearly up, as long as governments and economists keep preaching endless growth in a finite world.

Some time from now -- not too far off -- oil will "crash" to $500 from $750. Everyone will be relieved. The cornucopians will cite this as a clear sign that there is plenty of oil, and that all is well with the world.

Each peak and trough will be higher than the past one. Use this trough to advantage!

2008 Aug 16 12:28 PM

[lblaine:]

Okay, lets say your $1 trillion is correct and "Markets will fall lower ... and investors should start contemplating the bottom, which ... will occur next year." Next year is eternity in this market, and it looks like shorts are in order.

2008 Aug 16 12:46 PM

[Kunst:]

"I think Roubini's estimate is too high"

That's what everyone said a year ago when he was the first to say $1 trillion.

2008 Aug 16 03:31 PM

[Kunst:]

"...the bottom of the market, which I believe will occur some time next year."

Belief is nice. Do you have any concerning the second coming of Christ?

2008 Aug 16 03:34 PM