While the economy was still very hot most of the 2007 is quickly went into fast destruction mode just in few months. I’ve posted few days ago about Minsky theory and I just want to add few datapoints.
I think that the main locomotive of this Ponzi credit bubble inflation was a double-bubble process: real estate bubble and M&A bubble. I will loosely define the most spectacular phases of the real estate bubble as Q1′03-Q4′05 and M&A bubble as Q1′05-Q2′07.
I would also use the quarterly growth of corporate earnings as the simple and reliable indicator of economic health:
- Q1′06 +15% <– real estate bubble starts deflating
- Q2′6 +13%
- Q3′06 +30% <– M&A activity exceeded the 2000 level
- Q4′06 +27%
- Q1′07 +10% <– collapse of 50 mortgage lenders, jump in subprime interest rates
- Q2′07 +14% <– M&A activity reached unprecedented levels, but real estate is getting worse
- Q3′07 -24% <– M&A bubble burst and subprime lending halted
- Q4′07 -43% ….
February 1, 2008 at 3:42 pm
Could the Microsoft/Yahoo thing be a sign of a renaissance of the M&A bubble?
February 1, 2008 at 3:55 pm
I don’t think so. It’s unrelated.
M&A bubble was fueled by the fact that you can borrow tons of money at 5% and snap some corporations that, after some cost-cutting, will yield 6%. 1% is your profit going forward.
Microsoft needs it for business.
February 1, 2008 at 7:54 pm
I would also use the quarterly growth of corporate earnings as the simple and reliable indicator of economic health.
Quarterly Earnings
February 2, 2008 at 11:07 am
MicrosoftYahoo is a sign of weakness, akin to AOL taking over TimeWarner, which marked the peak of the Internet bubble. Vastly overpaid, difficult to monetize.
February 2, 2008 at 11:18 am
The decline in corp earnings was, obviously, concentrated in finance. We may need another quarter or two to see IF it spreads to other industry groups.
February 4, 2008 at 2:11 am
Soon you will be able to add bank failures (or bailouts) to this list once the 534 Billion in bad loans are written off.
February 4, 2008 at 8:23 am
What is your opinion on the AMBAC bail-out?
February 4, 2008 at 8:58 am
Who wants to dump billions of his/her own money in that black hole (Ambac)? This will turn out like the Super-SIV: Lots of PR, then nothing…
Seems like the FED does not understand the concept of a black hole: A black hole is not a hole; it is concentrated mass with an enormous gravity, where even light cannot escape – a “black” hole. By attempting to “fill” that thing all it does is grow bigger and more powerfull due to the additional mass (more mass = more gravity).
There is nothing the FED or Paulson can do to stop the crisis from eventually unfolding. The longer they postpone the inevitable, the worse the crisis will get.
February 4, 2008 at 11:29 am
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