from Casey Research:
A respected investment house just issued a major warning…
Regular readers know that emerging market stocks have crashed recently. EEM, a large ETF that holds emerging market stocks, lost 32% in less than four months this summer.
In a recent note, analysts at Goldman Sachs (GS) said this isn’t just a run-of-the-mill selloff. It’s the next phase of the global financial crisis that began in 2007.
Here’s what the analysts at Goldman Sachs had to say:
“Increased uncertainty about the fallout from weaker emerging market economies, lower commodity prices and potentially higher U.S. interest rates are raising fresh concerns about the sustainability of asset price rises, marking a new wave in the Global Financial Crisis.”
Goldman considers this the third wave of the financial crisis. The first wave was the U.S. housing crisis in 2007, which caused the S&P 500 to drop 58%…and almost took down the global financial system.
The second wave was Europe’s sovereign debt crisis in 2012, when entire countries like Greece, Portugal, Ireland, and Spain almost went bankrupt.
• Like us, Goldman Sachs believes that near-zero interest rates are the main cause of these financial problems…
Yahoo Finance explains (emphasis ours):
One of the reasons Goldman is concerned about emerging markets is that lower interest rates globally have fueled credit growth and a debt buildup, especially in China, and that’s likely to impede future economic growth.
Goldman noted that downgrades for emerging market economic and earnings outlooks have spurred fears of a “secular stagnation” of permanently low interest rates and fading equity returns.
Regular readers know central banks around the world have cut interest rates to near zero to stimulate their economies. This has made it extremely cheap to borrow money. It’s allowed people, businesses, and governments to borrow obscene amounts of money over the last few years. We’re not talking billions…we’re talking trillions.
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