Given the likely scale of the problems in the collateralized debt obligation (CDO) market, the US stock market has held up well. In March 2007, we mentioned
that the problems in the sub-prime lending industry would likely spread to brokerage companies and other financial institutions. Although the US stock market made new highs in June, brokerage stocks (with the exception of Goldman Sachs) were unable to better their January/February 2007 peak. Technically this is a negative sign for the entire stock market. Why? Because a very large chunk (about 45% of S&P 500 earnings) are financial earnings derived from financial intermediaries directly (market capitalization of financials is approximately 23% of the S&P 500) and financial profits from treasury and consumer lending operations of large industrial giants (GMAC, Ford Motor Credit, GE Capital etc).
It is probably fair to say that every multinational corporation has a hedge fund similar treasury department, whose objective it is to minimize borrowing costs & maximize the return on the treasury’s cash holdings. Hence, the stock market has begun to have second thoughts about future corporate profits.
that the problems in the sub-prime lending industry would likely spread to brokerage companies and other financial institutions. Although the US stock market made new highs in June, brokerage stocks (with the exception of Goldman Sachs) were unable to better their January/February 2007 peak. Technically this is a negative sign for the entire stock market. Why? Because a very large chunk (about 45% of S&P 500 earnings) are financial earnings derived from financial intermediaries directly (market capitalization of financials is approximately 23% of the S&P 500) and financial profits from treasury and consumer lending operations of large industrial giants (GMAC, Ford Motor Credit, GE Capital etc).It is probably fair to say that every multinational corporation has a hedge fund similar treasury department, whose objective it is to minimize borrowing costs & maximize the return on the treasury’s cash holdings. Hence, the stock market has begun to have second thoughts about future corporate profits.
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Source: IIPM Editorial, 2006
An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative
Source: IIPM Editorial, 2006
An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative
IIPM, Business College Ranking India BBA Institute India, IIPM IIPM - Nikhil Khade Online Welcome to 4Ps Business and Marketing The IIPM Think Tank IIPM New Delhi India Professor Arindam Chaudhuri, Renowned Management Guru & Economist IIPM Info Planning and Entrepreneurship Programme, IIPM New Delhi, India Business And Economy IIPM Placements New Delhi, India IIPM Business Management Institute India
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