Aleksei Kotlovanov / Profil

5 Triggers of the next financial crisis

Trump’s promises about tax cut and cancelling Obamacare caused optimism on the market and shares climbed. However due to history investors are prone to ignore the risks on specific markets, which may cause the system crash.

Here are 5 problems which can become a trigger of the next financial crisis.

Real estate bubble
The big cities in USA with the best economic indicators had a fast growth of real estate prices because of low mortgage rate and credits for upper-middle class and money-bags. Now Fed funds rate growth can cause the growth of credit rates and monthly payment higher than approachable for potential house-owners. Also it will influence the rental prices in bi cities.

Students’ credits
The volume of students’ loans is higher than 1,4 trillion USD and more than 40% of the loaners caused or will cause the credit default. In the end there will be 2 options for Federal Government: to pay out hundreds of billions USD or let the banks and bondholders absorb great losses. This is one of the unpopular scenarios, or as we have seen on the Lehman Brothers’ example in 2008, one of the opportunities for the US Government to face the financial instability. Trump’s administration will face a poor choice.

European Banks
European banks are now facing slow economic growth and ultra-low interest rates which cause difficulties with bad loan write off. Around 17% of Italian bank loans have already exceeded time limits. Deutsche Bank (NYSE: Deutsche Bank [DB]) have recently been fined by US Department of Justice (USDOJ). The bank forced the bondholders to exchange bonds for shares in the DB and absorb huge losses. The recurrence of the story may cause panic in Europe. In Italy they already proposed to common bank depositors to buy bonds circuit-wise as Americans invested in certificates of deposit. The forces exchanges for shares in banks may cause big saving losses and economic recession with high consequences for other European and American Banks.

China
Chinese Government sponsored noneffective state ventures. The export companies used available credits and supported the growth of economics. Now the state deficit is 15% GDP, and total national and individual debt is 250% GDP. China was printing money what caused a scary growth of bonds, shares, materials and real estate. Investors are leaving China, what reduces the RMB cost in USD. If these bubbles burst and RMB falls down, Asian countries and other developing economics which depend on export to China will probably become unable to service their USD debts.

Trump’s promises and political discord
Trump’s Economic program may encourage the global growth and ease the regulation on the individual markets. However there are difficulties - he will need to unite the Republicans to force the law on public health and rearrange the corporate tax. His defeat at these lines may easily depress the shares prices and corporate investments, cause one more economic recession and panic among customers. Rough democrats and rightwing are going to force American president keep the ideological simplicity and prevail at the risk of global economical crisis.

Buy Dollar on Dips or Sell on Rallies – What’s the Better Trade? The U.S. dollar traded lower across the board this past week. The best performers were the Australian dollar and British pound but outside of the euro, nearly all of the major currencies appreciated more than 1% against the greenback.

Who would have thought that when the Federal Reserve raised interest rates by 25bp, the U.S. dollar would tank? But that was exactly what happened this past week as the greenback tumbled against all of the major currencies.

Ides of March for US Market

The middle of March will be full of milestone events. CMC Markets are sure that 15th and 16th of March will bring incredible trading opportunities. The decision of FRS about monetary policy this Wednesday will attract heavy attention of the markets. While almost 100% of investors are sure that after the hawkish February statement about the employment the interest rates will be increased. According to Boston Private Wealth FRS will choose to be “hawkish”. This may cause oversells on market. But Yellen will try to give positive statements to avoid depression. These statements may put an end to the liberal monetary policy and become the defining moment for US stock market.

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