Market Risks Continue to Grow


MarketWatch is reporting a prediction by John Stephenson, senior vice president of First Asset Management in Toronto, that a new, Lehman-like financial crisis will occur in the next six to twelve months, this time involving the debt of government and European banks. Mr. Stephenson predicts that stocks will fall to levels that existed just after the collapse of Lehman in 2008. The decline will be “deep” and “ugly,” he told MarketWatch columnist Howard R. Gold. Mr. Gold takes him seriously. See his column entitled “Lehman Brothers II crisis is coming soon.”

Other noted investors George Soros and Nouriel Roubini, who predicted a bubble in U.S. housing prices before the market peaked in 2006, have made similar predictions, saying the next crisis has the potential to be even worse than the scary credit crisis that followed Lehman’s bankruptcy.

European banks laden with shaky sovereign debt are being downgraded. Credit default swaps on Greek sovereign debt indicate the market’s belief that there is a 92% probability of a Greek default, which lead to further hemorrhaging in Spain and Italy. With derivatives contracts linked to European sovereign and bank credit, the effects could spread to the United States and worldwide.

Mr. Gold writes: “I’m not entirely convinced of his Armageddon scenario; I think a long drip, drip, drip of bad news with sudden flare-ups of panic is just as likely. In any event, I lightened up on stocks late this spring because I was worried about these things.”

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