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Guest wrongmove

Are Global Market Bubbles Set To Blow?

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Guest wrongmove

Are global market bubbles set to blow?

"There is a strange fascination in blowing a bubble, when despite your better judgement, you keep willing it to get bigger regardless of the dangers.

Then, suddenly, the violent pop that leaves you picking bubblegum off your eyebrows, or crying soapy tears.

For many observers, global markets are getting dangerously close to such a bursting point.

Until recently, we have been living in a period of low global interest rates that have let consumers and companies borrow money cheaply.

That has driven demand for mortgages, let companies pay increasingly large sums for takeovers, and allowed consumers to spend freely.

And the results of this credit splurge are hard to ignore:

* UK house prices have doubled in the past 10 years.

* China's main stock index has quadrupled in value since the start of 2006.

* The UK's FTSE 100 and US S&P 500 stock indexes are at levels not seen in almost seven years.

* Commodity prices have been buoyed by strong global demand, pushing some such as copper to records.

* Merger and acquisition activity has taken off, and private equity firms are now in control of some of the world's biggest brands.

But as the records have continued to tumble, concerns have kept on mounting.

Credit crunch

One of the main reasons for the current uncertainty has been the significant changes and volatility in the US bond market.

The price of 10-year US government-backed bonds has fallen, pushing their yields above 5.25% for the first time in five years.

Simply put, this means that investors are not expecting interest rates to fall anytime soon, especially as the Bank of England, the US Federal Reserve and European Central Bank have all been lifting borrowing costs in recent months.

What has many observers worried is the sudden speed with which the change occurred and the fact that it seems to confirm the view that the era of low interest rates has ended.

First and foremost this will make it more expensive for companies and consumers to get their hands on cash.

That in turn could lead to fewer private equity deals, and a cooling of the housing and stock markets.

Home improvements

In recent years consumers have benefited from the largesse of lenders, taking on larger mortgages and increasing personal borrowing to levels many now see as unsustainable.

On Tuesday, figures from the Council of Mortgage Lenders showed that first time buyers borrow an average of 3.33 times their incomes to buy a home. Other measures show they are using 18.7% of their incomes to meet mortgage repayments.

Pessimists also point to a wobble in the US housing market, where prices have started to soften and high levels of sub-prime lending to people with poor credit histories has fanned fears of a surge in mortgage defaults should interest rates rise.

At the same time, some very canny real estate operators have been selling up, signalling that, for them at least, the market could not get any richer. ........."

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It's hard to believe that this came from the blair broadcasting company (except the upbeat bit near the bottom).

I'd say that they are taking a stance which can be shown to demonstrate that they are a responsible news organisation..... just before they are shown to be incompetent or negligent or complicit.

Edited by Dubai

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