Jim Walker of Asianomics said that markets have not discounted crisis and that it can see a 20% downside. Also, he feels that the equity markets troubles are not over and that a downside of another 25% cannot be ruled out. However, he added that markets could see a correction of upto 25% from the current levels.
Jim Walker feels that not bailing out Lehman was a positive move from the Fed. “AIG businesses may wound down over a few years,” he said. He also feels that there is a long way to go in the credit crisis and that he sees more bank failures in the US and Europe.
Walker added that there will be a much smaller banking industry in the global economy and the credit flows will reduce. He also expects very disappointing earnings from the Asian markets in the near term.
Here is a verbatim transcript of the interview with Jim Walker on CNBC TV18. Also see the accompanying video.
Q: What do you make of the AIG move by the Fed?
A: Fed’s move was surprising after the events of the weekend; it was good to see the failure to the bailout. Lehman was a very positive move on the part of the Fed. The US Government was saying that “You have got to take care of yourselves, you guys got yourself into the mess and we are not going to bail you out anymore.” However, a few days later it is sending a different signal altogether. They see a potential systemic problem in AIG. It was threatening some of its best friends on Wall Street; the likes of JP Morgan and Bank of America.
For the mean time, what it means is that AIG shareholders have wiped out, AIG debt has been taken on board and effectively AIG businesses will be wound down over the course of next two years in an effort to repay the Federal Reserve and effectively the US tax payer.
Q: What is your sense of how much more might there be to this credit crisis and how much nervous global markets will have to remain to that situation?
A: Unfortunately, we have a long way to go in this credit crisis. There are a lot more bank failures to come in the US. Moreover, there is a possibility that one or two such failures may also happen in the UK, and certainly, the potential for takeovers and some big names to disappear is rising. I don’t think Europe is going to escape unscathed neither the European banks nor the biggest wholesale funders. Also, the wholesale funds are now in the process of being withdrawn.
We will have a much smaller banking system in the global economy. There will be much less credit availability, and in fact, over a year or so, there will be credit contraction, and therefore, much weaker economic growth.
Q: Do you think all these bailouts will succeed in putting some kind of a floor to global equity markets in the near-term or do you think we need to head more southward?
A: Equity markets have discounted a lot already, and certainly in Asia that has been the case. The reality is that we are going to get over the second half of 2008 and first half of 2009 with some very disappointing earning results from companies across Asia. I am not sure the markets have fully discounted the prospects of that slowdown.
Hence, we will see more downside in the markets yet; maybe, even as much as 25% downside. It is not too early for people to take protection and to insure themselves by going long. The worst in terms of economic growth and profitability is certainly in front of us.
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