Monday, March 19, 2007


Jim Rogers & the end of the "liquidity party".
. "Top investor sees U.S. property crash", Reuters

From a Reuters interview with star investor Jim Rogers: "This is the end of the liquidity party ... Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse. When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.

Rogers adds: "You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York. "It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops. Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets".

Pretty straightforward stuff. (HT: Big Picture).

"The lion is tame": Myron Scholes on Risk & Liquidity
. Holman W. Jenkins, Jr. "Risk Manager A Nobel laureate says learning can be costly", The Wall Street Journal.

Risk is "a lion", says Myron Scholes in this Wall Street Journal interview. "Right now we're quiet because the lion is tame, and maybe it's the central bankers of the world who are keeping it tame." But this very quietness creates a dangerous state of affairs ― it attracts even more risk-takers: "My belief is that because the system is now more stable, we'll make it less stable through more leverage, more risk taking." Thus Scholes on macro-economic liquidity. But what about micro-economic liquidity?

In chaotic times, speculators (who are business people, in Mr. Scholes's view, providing liquidity services to the market) doubt their models. They want to reassess. In today's ever more globalized and complex economy, "the information set is huge, it's gigantic." As a result, "decision time becomes elongated" and speculators hold back their capital just when their services are most in demand. The lack of liquidity itself then becomes a factor in asset pricing, leading to swift, sharp drops in values.

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