many analysts are predicting recession in early 2008.
why: see our discussion on deleverage , credit crisis of 2007, margin call
What frightens, in the American crisis, is the speed with which arise bad news. First, it was the problem of real estate mortgages, which can cause a loss of up to $ 500 billion. Then, the main American banks, led by Citibank, publicized the worst balance sheets in history. Last week, said that the insurers of credit could lose $ 15 billion.
recession in the United States and reducing the speed of growth in China and other Asian tigers was enough to down the prices of key agricultural commodities and minerals, which should affect the trade balance
more: how would a USA recession effect Latin America ?
Pro: Companies will cost less to acquire. This will be an across-the-board sort of thing, much like price inflation affected all sectors in 2006 and early 2007. Expect private equity to return to its pre-boom knitting of zeroing in on underperforming sectors, like financials and consumer. In fact, it’s already happening. A panelist at the Wharton conference mentioned that PE firms tried getting involved in many of those bulge-bracket bailout deals that ultimately went to sovereign wealth funds.
Con: Existing portfolio companies will be harder to exit. Not just to the public markets, but also to strategic acquirers. We’ve heard lots of talk about how corporate America is sitting on piles of cash, but major market sell-offs have a way of lowering those levels. Sponsor-to-sponsor deals are still an option, but then you run back up against the issue of reduced purchase prices.
Pro: Motivated spin-off sellers. Big companies always like to refocus on “core businesses” in the tough times, even if the sale prices can be a bit tough to stomach.
Con: A bear market could drive down private equity fundraising. One reason for the record tallies of 2005-2007 was that institutional investor caches kept rising, thus boosting the real dollars associated with a 5% or 7% alternative allocation. Well, it also works the other way, which could mean fewer real dollars available.
Stagflation is any economists worst nighmare. Low economic growth plus high inflation. The economists would like to cut interest rates to spur economic growth, but can because they must raise interest rates to fight inflation. There is a real possibility that inflation is rising in 2008, and that there is a recession coming. Will this be the 1970's all over again? some analysts are saying that it might, but many things are significantly different now, so the parallels are not fair. But, remember...after the 1970s, the US economy recovered, but the Latin American economies fell into a spiral of recession and debt crisis. When the US economy slowed, and credit dried up, commodity prices plummeted...it led to massive budget problems across Latin America. So, the million dollar question to ask today is: if the US were to fall into stagflation, will commodity prices fall? If they were to fall, and if the US were to be in recession, what would happen in Latin America?
correlation between a US recession and worldwide commodity prices