I love the smell of panic in the morning. Smells like...opportunity. Smart investors who've husbanded their cash and kept leverage to manageable levels will be looking for bargains amid the rubble on Wall Street. Cool heads will prevail. Many assets are still in for big declines, and US dollars are newly risky. China's rate cuts makes Communists of us all and I'd rather be lending money to the Europeans than to Americans right about now. Countries with current account surpluses will do better against the dollar than those with deficits. The flight to safety will also favor long-term US Treasuries, Swiss francs and precious metals. As for the crisis itself, we face now the deadly Number Two of the One, Two punch. Plunging asset prices worldwide are bound to claim another victim fairly soon. It may just be AIG, a company that like Lehman is so large it could set another row of dominoes falling if it falls. S&P just lowered AIG's rating, which forced it to fork over billions in collateral on its derivative contracts and will make credit even tighter for the company just when it needs it most. An even bigger question is whether the conflagration on Wall Street will now spread to European financial institutions and force one or two, like maybe UBS, to do a Lehman. Already the ECB is winding up with billions in liquidity to keep that from happening after pumping $43 billion into the interbank market yesterday. Pressure is now building on those government agents with cash ? the US Treasury as well as sovereign wealth funds ? to come to the rescue of financial markets. So much for demands that they not be used for political ends. Analysts say they believe Gulf SWFs are well-diversified enough to weather the latest storm, but considering that most, if not all, asset classes are tumbling, it seems virtually certain that they are suffering staggering declines in their portfolios. Considering their risk aversion, it would surprise me if they don't also engage in a little forced selling soon to reapportion their portfolios and maintain their risk profile at the expense of some profit-taking.
warnold@thenational.ae
