Systemic Risk & Sectoral Meltdown:
Heightened Correlation and Deleveraging
London, UK - 16 August 2007, 00:45 GMT
Dear ATCA Colleagues
[Please note that the views presented by individual contributors are not
necessarily representative of the views of ATCA, which is neutral. ATCA conducts
collective Socratic dialogue on global opportunities and threats.]
Central bankers, global and regional financial institutions, large hedge
funds and investors have been puzzled why prices across a wide spectrum of
assets have moved down together over the last seven days or so. They should
not be, because high correlation across asset classes and geographic regions
is a broad trend which has been increasingly noticeable in the era of globalisation
with free capital and goods flow as well as information and ideas exchange.
Previously major markets in Asia, Oceania, Africa and Latin America might
have behaved differently from those in North America and Europe. Not any more.
The same holds true for different asset classes. Further, leverage -- multiplying
the trades' return -- is a wonderful profits accelerator when asset prices
are rising. It is a bear when asset prices start to retreat and then it creates
a self-fulfilling vicious circle. Unfortunately, almost all players can get
caught out -- mostly without their swimming trunks on -- as a low tide with
visibly lower liquidity drifts in.
We are grateful to:
. Rudi Bogni, Chairman, Medinvest, and Director, Old Mutual, from Basel,
Switzerland, for, "Non-Stop Central Banks'
. Dr Ravi Batra, Professor of Economics, Southern Methodist University,
Dallas, Texas, USA, for, "Towards a Global
. Aurora Carlson, Founder, Open One Center, based on the West Coast, Sweden,
for "The Coming Storm of Change;"
. The ATCA Editorial Team, based in Canary Wharf, London, UK, for "Large
Quake hits Quants as Computer-Driven Quantitative Hedge Funds Short-Circuit;"
. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC, USA
for "Prolonged Credit Market Correction Ahead;"
. Prof Dr Norbert Walter, Chief Economist, Deutsche Bank Group, based in
Frankfurt, Germany, for "Economic Consequences
of The Sub-Prime Crisis;"
. Anthony Whitehouse based in Coppet and Geneva, Switzerland, for "Regulators,
Hedge Fund Lending and Cross-Selling;"
. The ATCA Editorial Team, based in Canary Wharf, London, UK, for "Perfect
Storm: Credit Freeze and Distress Selling by Hedge Funds;"
. Dr George Feiger, based in Berkeley, California, USA, for "Two
Faces of the Same Coin;"
. The ATCA Editorial Team, based in Canary Wharf, London, for "Contagion
and Systemic Risk? ECB Injects Record Euro 95bn post Major Disturbance;"
. The ATCA Editorial Team, for "Flight to Quality
as Markets finally Appreciate Risk;"
. Robert McNally, Chairman, London Chamber of Commerce Property and Construction
Group, for "Erosion of Commercial Real Estate
as a Solid Asset Class;"
. Alexander Hoare, CEO, C Hoare and Co, Private Bankers, based in the City
of London, for "Destructive
Creativity, Leverage and The Derivatives Market;" and
. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC, for
"The Fear of Central Bankers -- Flight from
Illiquidity, Derivatives and Heightened Risk of Contagion;"
in response to, "Are the Currency Markets Warning
that there is Trouble Ahead? The Precipitous Decline of the US Dollar and
its Impact on the World."
We look forward to your further thoughts, observations and views. Thank
For and on behalf of DK Matai, Chairman, Asymmetric Threats Contingency
ATCA: The Asymmetric Threats Contingency
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The views presented by individual contributors are not necessarily
representative of the views of ATCA, which is neutral. Please
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