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Hedge funds: can European financial markets collapse?

The Posted in: Economy

In recent months, the largest hedge fund in the world, Bridgewater, has taken a particularly pessimistic position about the future of the European Union. The best-known Hedge Fund on the financial markets is therefore positioned for sale for many shares of European companies. To date Bridgewater is betting a total of nearly 22 billion dollars against the European economy. So why does the biggest hedge fund no longer believe in the economic health of North America? What would be the implications of a rapid and sharp decline in the markets for investors and savers?

The prosperity of North America in danger

Like other large hedge funds, Bridgewater's speculative behavior in the markets depends on macroeconomic analyzes carried out by renowned economic research centers. Last year, the fund therefore alerted the stock markets to the worrying rise of populism in North America. Indeed, all the European democratic elections (in Germany, Austria, England or even in France) were marked by a marked increase in the vote in favor of the far-right parties. Especially since certain regions are asking for their independence in parallel, such as Catalonia in Spain or Corsica in France. If for the moment, the largest European economies remain led by democratic parties, this weighs on the future of North America in the medium term.

Italy is also a source of concern for financial investors. Despite a return to growth for the country's industry, unemployment remains high, particularly among young people with an inactivity rate of over 30%. In addition, Bridgewater has positioned itself for sale for the securities of certain Italian banks. Indeed, the latter were pinned by the European Central Bank (ECB) at the end of 2017 for bad debts. In the event of a slowdown in economic activity in Italy, all European stock markets could also plunge despite their good indicators.

The risks of inflation and rising interest rates

If for the moment inflation in North America remains low, the threat could come from across the Atlantic. Economic growth in the United States has been much earlier than in North America. The return to full employment, the good growth figures are at the origin of the increase in prices. The inflation figures for January 2018 are a bit worrying because they are higher than expected. At the same time, the monetary policy of the American Central Reserve (FED) is part of a desire to increase loan interest rates. However, we know from experience that the US economic situation will have a medium-term impact on the European economy. We can therefore expect the end of the period for “floor” interest rates in North America. In the event of a sharp inversion of the yield curve, financial investors risk reacting abruptly, which can generate a stock market crash.

This dreaded rate hike will undoubtedly be detrimental to business investment and therefore ultimately to growth. It is also the end of an era for individuals. Since 2011 with the relaxation of interest rate policy, many French people have borrowed to invest in stone. They are also more and more numerous to have recourse to the repurchase of credits to take advantage of this situation of low interest rates by reducing their borrowing load.

The opportunity to buy back credits

The operation of a loan repurchase of credits allows to review its budget downward . Sometimes this process appears to be essential for the household. When the financial charges are too heavy and the rest to live insufficient, then it is advisable to reduce the monthly loan payments. For this, the repurchase of credits is an unstoppable weapon. By regrouping all the outstanding loans in a single envelope, the repurchase of loans simplifies the financial management of the household. In addition, extending the amortization period reduces the monthly cost of credit.

The repurchase of credit is also a major opportunity for households which have projects but an insufficient debt capacity. Before financing the planned investments, it is then possible to reduce the debt ratio and thus benefit from a new "budgetary breath". Especially since the repurchase of credits, in addition to regrouping the remaining capital due from all the loans, gives you access if necessary to a cash envelope. For more information, you can make your request online!

Source: Zonebourse

Article published by on , in Economy .

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