Bank of England fears that larger private equity deals done in the boom years ‘pose a risk to the stability of the financial system’ as refinancing looms
The Bank of England warned on Thursday that the next phase of the UK’s six-year financial and economic crisis may be triggered by the collapse of debt-laden companies bought by private equity firms in the boom years before the crash.
In its latest quarterly bulletin, Threadneedle Street said the need over the next year to refinance firms subject to heavily leveraged buyouts posed a systemic threat.
The Bank added that it would use its new role as the watchdog of the City to monitor private equity deals in future “episodes of exuberance” to prevent a repeat of the debt-driven takeover boom in the run-up to the banking crisis.
“In the mid-2000s, there was a dramatic increase in acquisitions of UK companies by private equity funds,” the Bank said.
It seems more likely to Morgan Stanley’s Gerard Minack that central bankers may win the battle: sustaining recovery in developed economies with extraordinarily loose monetary policy. For a while this would go hand-in-hand with better equity performance. The battle is against a crisis caused by too loose monetary policy, elevated debt and mis-priced risk. Ironically, he notes, central bankers may overcome these problems by running even looser monetary policy, encouraging a new round of levering up, and fresh mis-pricing of risk. However, winning the battle isn’t winning the war. If central bankers do win this round, the next downturn could be, in Minack’s view, an omnishambles. In short, it seems more likely that central bankers may add another leg to the credit super-cycle. The key question for investors in this scenario is when (and how) this cycle may end, and Minack’s hunch is that this cycle is already closer to 2006 than 2003.
Let’s wind the clock back to 2008.
The world was thought to be ending. Lehman went bust. Markets were plunging. Everyone was scared that growth was over. It was as though the global economy was grinding to a halt.
But then China’s stock market bottomed. The Chinese Government announced a massive stimulus plan to turn its economy around. And sure enough the Chinese economy took off again.
A few months later, the US markets bottomed courtesy of extraordinary stimulus from the US Federal Reserve. Three months after that, the US economy was showing what everyone claimed were “green shoots.”
And the world began to gradually shift towards growth and increased confidence.
Why do I bring all of this up? Because it was China’s stimulus and China’s economy that supposedly lead the world back towards growth again. China is the proverbial canary in the coalmine, the economy that most quickly reveals what’s coming and where we’re all heading…
Well, China’s heading for inflation.
China should be on “high alert” over inflation after February’s figures exceeded forecasts, central bank Governor Zhou Xiaochuan said, signaling a heightened focus on controlling prices.
Monetary policy is “no longer relaxed” and is “relatively neutral” as demonstrated by a 13 percent target for money-supply growth that’s tighter than expansion in the last two years, Zhou, head of the People’s Bank of China, said at a press conference today during the annual gathering of China’s National People’s Congress…
“The central bank has always attached great importance to consumer prices,” Zhou said. “Therefore we will use monetary policy and other measures to hopefully stabilize prices and inflation expectations.”
China’s new leaders including Li Keqiang, set to become premier this week, inherit the task of sustaining a recovery from the slowest growth in 13 years while reining in asset prices and credit. February inflation, distorted by the weeklong Lunar New Year holiday, accelerated to a 10-month-high of 3.2 percent.
The bank’s research department transcribed Hafeez’s speech and sent it out to clients in a note.
The speech focuses on the euro area’s economic woes and the need for the currency bloc to move forward with further integration in order to be economically successful.
Hafeez opens the speech with a reflection on parenting and a child’s years as a “terrible teen.”
The gist is that euro member states are behaving like infighting teens – which is preventing further integration – and they need a role model that everyone across Europe can respect.
“I can only think of one figure that is respected by most Europeans and has never sinned, Jesus!” said Hafeez.
Japan is falling on their sword for the good of the NY & London criminal banksters by purchasing their worthless derivatives.
The Japanese have decided to perform Hari-kari on themselves and disembowel their economy on a global stage. In what can only be described as willful suicide, the BOJ has decided to begin buying derivatives. The most volatile financial weapon of mass destruction will be purchased by the Japanese, the question is why?
As the US economy continues its death spiral, Japan has been ordered to jump on the grenade and keep the dollar charade going for just a little bit longer.
Japan is finished, energy and food prices are through the roof and they are moving from the lost decades to being the lost civilization.