Has the storm passed global markets?

It wouldnt be a surprise to think on these lines, as global financial markets especially Equities have settled in a range.Is this the lull after a storm or a lull before the onset of the next upheaval? I would argue its somewhere between the two. Financial markets seem to have priced in a lot of bad news already, which is a slightly comforting fact for investors. The not so comforting fact is, we could have the next storms beginning to take shape already.

I would equate the present climate in global markets to the US hurricane season of 2005, which was the most active hurricane season on record when 15 hurricanes were recorded. Where i draw a resemblance is, global markets have been hit by bad news at regular intervals. No sooner one crisis eases, another seems to creep up. First it was the subprime crisis, then it was the credit crisis. Even as the world still recuperates from these twin blows, even bigger problems could be in the pipeline.

The news of a $50 bn fraud by a hedge fund run by the former chairman of the Nasdaq Bernard L Madoff is a huge setback for investor confidence in hedge funds. The hedge fund industry has been on course to post the worst year on record, as they have been hit by redemption pressures as investors sought to reduce risk. This news could potentially become a huge problem, how it affects markets remains to be seen.

Another potential problem area is commercial real estate. An article on the Dow Jones Newswires said data from Standard & Poor's shows nine large banks hold about $121.1 bn in commercial real estate loans. These loans have to be marked to market. The three biggest holders are Citigroup, Merrill Lynch and Barclays, which each hold more than $ 20 bn of related investments. A next wave of write off could be around the corner.

Credit cards could be in line as well. Rising unemployment is bound to hamper the repayment capacity of borrowers and in turn create headaches for the lenders. An article in the Wall Street Journal quoting te Nilson report, a newsletter that follows the industry stated JP Morgan Chase, Bank of America and Citigroup had nearly 60% of the $ 724.44 bn in outstanding loans at the 10 biggest card issuers in the US as of June 30. One need not be a rocket scientist to do the arithmetic. Writeoffs on credit cards could be huge....thats not an understatement by any stretch of imagination.

Well, the markets seem hell bent on giving us analysts a tough time even in 2009. For now, i await the onset of a much needed break at the year end. I hope 2009 will not be as bad as 2008, but all i can do is hope, wait and watch.