Wednesday, April 06, 2005

Illuminati Speak

I skimmed over the introduction to IMF's semiannual Global Financial Stability Report released yesterday. They open with their assessment stating:

Our positive assessment of financial stability
is underpinned by the favorable prospect for
the world economy.

And then finish the introduction by stating:

Looking ahead, while there is no particular
reason to believe that this benign scenario
might come to an end any time soon, we see a
number of risks that could test the resiliency
of the financial system. At a time when the
financial sector is in solid shape, the risks
are—by definition—more on the downside.

Followed by a page or so doing a good job summarizing all of the outstanding macro risks. They seem to be concerned about the credit market, particularly the effects a blow up in credit securities would have on the financial sector. They express concern over the relatively small amount of counterparties in "new" credit derivative markets.

They say the following, in brief, about the stock market.

After growing strongly in the past two years,
corporate earnings growth is likely to decelerate
in the future. In a similar vein, banks may
not be able to count on a reduction in credit
provisions to increase their reported profit.
Earnings disappointments relative to market
expectations are likely to occur and may cause
equity markets to decline, perhaps together
with rising volatility.
Such corrections in major
equity markets could weaken a stabilizing factor
that has helped improve the solvency of
many financial institutions, such as insurance
companies in several countries.



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