Wednesday, June 14, 2006

Global Equity Meltdown Costs Investors $2 Trillion

A couple of interesting articles on Global Capital Markets.

The month-long slide in global stocks has wiped out at least $2 trillion in wealth, leaving investors few alternatives to preserve their holdings aside from bonds and money markets.
That is just a staggering large number reported by Yahoo News.

Robert Samuelson writes about how the global investment market has grown in the last 30 years. While on balance is probably a good thing it has lead to two new risks: worldwide financial crises and huge trade imbalances. He also looks at the enormous amount of money on the global capital markets.
Americans invested $856 billion abroad, while foreigners invested $1.44 trillion in the United States.
Martin Mayer looks at the foreign official and international accounts.
What the number announces is the quantity of government and agency securities held "for foreign official and international accounts" — that is, for foreign central banks and finance ministries — by the federal reserve banks. It is important because over time it measures the demand for American assets by private enterprise in the world's creditor nations. It is important also because it is very large — last week, about $1.63 trillion. Three years ago, just before the invasion of Iraq, it was about $900 billion. The week George W. Bush took office, it was $693 billion.

Recent large increases in foreign official holdings indicate that foreign private investors see fewer attractive places to put their money in the American economy. They could presage a significant fall in the price of American assets, stocks (witness the recent drops in American stock markets) and bonds and real estate and all, and a hard landing for a world economy still floating on the crest of cheap credit.

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