"Global Credit Crunch?"

An informative and troubling post from Barry Ritzholtz at The Big Picture that picks up on themes we’ve discussed earlier, namely excessive liquidity, a widespread cavalier attitude towards risk, historically low levels of volatility despite a less-than-rosy geopolitical setting:

Surprisingly strong words out of Merrill:

“Merrill Lynch has warned of a global credit crunch as central banks in Europe and Asia tighten monetary policy, advising clients to shun risk and switch to safer assets over the forthcoming months.

Presenting its strategy for 2007, the US bank said the world boom is clearly giving way to a slowdown that will shake up markets and punish smaller equities, industrial metals, and lower-tier assets of almost every kind.

Money can still be made as the cycle turns, chiefly by rotating into short-term cash deposits and quality stocks with good dividend yields such as AstraZeneca, Barratt Developments, Sweden’s retailer H&M, or Spain’s Banco Popular Espanol – along with a few bars of gold bullion.

The bank said 2007 would be the “year of the dividend”, with fear returning as the VIX and VDAX volatility indexes – widely used in option trading – rise from record lows.”

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