Blogs & Comment

Risks to the recovery scenario

One of the big questions for investors these days goes something like this: Are we out of the woods yet; is a 50% rally in stocks warranted at this stage? The consensus view seems to be Yes.But going through my list of daily reads, I was reminded of some the risks that may be worth keeping in mind. Here is todays round-up:
The U.S. has failed to fix the problems of its banking system, notes Joseph Stiglitz, the Nobel Prize-winning economist. The too-big-to-fail banks have become even bigger; the problems are worse than they were in 2007 before the crisis, he told a reporter on Sept. 11(or thereabouts).
Chinese stockpiling of commoditiescould taper off and remove a prop supporting commodity prices.
U.S. tariffs on Chinese tires and Chinas likely retaliation in the form of tariffs on U.S. chickens and car parts could signal the start of a trade war; the longer China and U.S. refuse to take a co-operative approach to addressing lingering structural imbalances in the world economy (i.e. undervalued yuan and unbalanced growth), the more they risk failing to achieve a sustainable recovery.
U.S. bank credit continues to contract at an alarming rate, down $200 billion since the end of July to the beginning of September. Credit deterioration tends to lag but the annualized drop of 12% over the past 13-weeks has been unprecedented. The credit system is still broken, writes David Rosenberg of Gluskin Sheff.
Loan-loss provisions at banks are piling up and likely to get worse according to Moodys.