Speaking of starting afresh, while the financial crisis still lingers over us, many (including me) believe the worst is over. So are there anything for us to look forward to in terms of investments?
Before we move forward, let us briefly recap how the financial crisis actually started (I know its painful to remember things sometimes, but one should always learn from the past). It all started with the US housing bubble which peaked in 2005-2006. High default rates on sub-prime loans begin (sub-prime loans are loans which are in the riskiest category in the consumer loan market). Basically the financial institutions keep dishing out money to house buyers that have low credit rating. As house prices begin to stagnant or fall, house owners can no longer refinance their houses to keep up with their high interest rate mortgages. High defaults and foreclosures in turn plunge the US housing market even further.
When all these collapse, it spilled over to the financial markets. Many of these sub-prime loans are repackaged into financial instruments such as mortgage-backed securities (MBS) and a form of credit insurance called credit default swap (CDS). These are in turn sold to investors. Financial institutions who suffered losses includes Lehman Brothers (since bankrupt) and AIG (who received close to US$180 billion in US government aid that it has yet to repay). The spiraling effects include falling global consumer wealth, substantial financial commitments by governments all over the world and a significant decline in economic activity globally.
Going forward, US Federal Reserve Chairman, Ben Bernanke recently gave his comment on the US economy stating, "I've seen some agreement among the forecasting community at this point that we are in a recovery, that we will see growth in the third quarter continuing and that growth will continue into 2010. But the general view of most forecasters is that that pace of growth in 2010 will be moderate..."
Recent gains in stock prices, rise in consumer confidence and home building activity, reinforces Bernanke's view that the worst is over. The Standard & Poor's 500 Index has soured 58% since March 9, 2009 when it hit a 12-year low. Reuters/University of Michigan Index of Consumer Expectation rose to 65 in August 2009, and climbed to 69.2 in Sep 2009; signally future spending is likely to rise. US Building Permits rose 2.7% to a 579,000 annual rate in August 2009; signally an increase in future construction. Things are indeed starting to improve and next we can talk about where best to put our money to take advantage of the recovering US & global economy (A new form of investment is about to hit the Malaysian shores)!
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