Source: Bloomberg
Author: Chris Anstey
Ed Yardeni, an observer who has tracked market and economy for a long time, said that the current global stock market decline is similar to the market collapse in 1987. At that time, although investors were worried, the economy eventually avoided decline.
"So far, it is easy to be reminiscent of 1987," Yardeni said in the Bloomberg Surveillance program of Bloomberg TV."At that time, the stock market collapsed -basically appeared within a day, and there were opinions that we were already or about to fall into a recession. But this did not happen at all. In fact, it was more related to the internal factors of the market."
One of the explanations of the current plunge in the stock market is to use the so -called arbitrage transactions that have invested in other assets to close the position of the so -called arbitrage transactions in Japan's nearly zero financing costs.The Bank of Japan announced last week and promised to consider further action to crack down on such so -called arbitrage transactions.The trader also mentioned the betting of the large -scale US technology companies.
In terms of internal market developments, "I think the current situation (as the same as 1987)", Yardeni, the president of Yardeni Research, said that "this selling is largely related to arbitrage trading liquidation."
In the historic plunge in 1987, the then Federal Reserve Chairman Allen Greenspan lowered interest rates and injected liquidity into the financial system.Yardeni said he expects monetary policy makers to respond to the current situation, but he does not think there will be emergency interest rates.
Credit risk
"This is evolving into a global financial panic. I think we can expect central banks to respond to this," he said.Shortly after his speech, the US stock market had narrowed the decline on Monday afternoon.
At noon in New York, the S & P 500 index fell about 2.3%, and the market fell about 4.3%.The Japanese East Stock Index fell more than 12%.U.S. Treasury bonds are also rising first.
The first response of decision makers may be "reducing concerns about the economy of the US" and resisting the Federal Reserve's view of starting interest rate cuts with 50 basis points, Yardeni said."But you know that if there are a few days after the futures selling on Friday and this morning, I think the central bank will enter a model of liquidity, which may mean 50 basis points to reduce interest rates."
Yardeni said that the danger is that the market plunge will self -strengthen and lead to credit tightening."It can be imagined that this arbitrage transaction can evolve into a certain financial crisis, which leads to economic recession," he said, but at the same time emphasized that this is not his expectations.
"The labor market is still in a good state," he said, even if the US non -agricultural employment report on Friday was weaker than expected.In July, non -agricultural employment data showed that employment growth slowed down significantly, and unexpectedly rising unexpectedly, which caused people to worry about the Fed's highest level of interest rates from the highest level in more than 20 years.
"The US economy is still growing, I think the service economy performs well," he said."In short, I think this will become a large extent into the technical abnormal trend of the market, rather than the economic recession."
Yardeni is famous for creating the term "bond Guardian" in the 1980s. The word refers to the high interest rate of investors 'concerns about the fiscal trajectory, which affects the possibility of decision makers' discussion.
