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There have been many reports on the global economy going forward. The comments are diverse. Do read this latest report by Michael Preiss (director of Asian Bond Market Forum) very carefully. It is in stark contrast to reports which paint a rosy outlook for the global economy in 2008 and beyond.

Business Times 17 January 2007, Buy fear, Sell Greed

Liquidity is flooding the markets, but as every easy money boom in history has shown, nothing lasts forever.

Winston Churchill?s tribute to the RAF pilot who dissed the Luftwaffe in the Battle of Britain could be an apt metaphor for the liquidity tsunami that has swept the global financial markets. Never have so many junk assets owed so much to the epic money pump of so few central bankers, who have now managed to re-price risk down to zero.

The best and brightest in finance are all optimists for 2007. And why not? The VIX index ? the CBOE Volatility Index or greed-fear gauge ? is at a decade low at 11. Goldilocks (it means US economy is neither hot nor cold)

is alive and kicking. The entire world has gone ballistic for risk : Chinese banks at six times book value, Third World debt risk spreads the narrowest in history, 150% returns in Ho Chi Minh City, Egyptian stocks triple the valuation of the S&P 500, having risen 800% in three years. But what of the music stops? Every boom contains the genesis of its own bust. Every easy money boom in world finance ? Wall Street in the 1920s, Japan in the 1980s, South East Asia in the 1990s, the Arab stock markets since 2002 ? exhibit eerily similar phenomena. Rapid expansion of credit, go-go bankers, the irrational pricing of risk.

In Dubai, for example, there is 95% financing on speculative real estate deals, 120 brokers on the Dubai Financial Market to trade 30 shares (of which 5 actually trade) and extravagant, unreal projects full of hot air (US$50 billion cities in the Sinai desert).

Inflation in our times is not the CPI but the exponential rise in credit, monetary aggregates and asset prices. When the US Fed responded to the Silicon Valley tech bust and 9/11 with its epic monetary ease, it spawned the biggest credit bubble since the 1920s on Wall Street. The result? Rapid fixed investment growth, soaring stock markets, property bubbles fuelled by cheap debt, irrational pricing of risk, leveraged daisy chains of offshore capital, financial markets morphing into Vegas casinos.

What could derail the global business cycle in 2007? The household borrowing binge and property bubble have now ended. Like internet shares in the 1990s, trillions of dollars invested in speculative real estate all over the world are now at grave risk as America slips into a housing recession.

My recommended anti-dollar money hedges? Norwegian kroners, Russian roubles, Singapore dollars. Especially Singapore, an AAA-rated small independent island state with no debt sitting in the middle of China and India.

If all is hunky-dory in the US economy, why are the CEOs who run Corporate America so reluctant to boost capital expenditure (capex)? Instead of boosting capex, they would rather pay themselves bonuses, in excess of US$50 million in some cases.

The smart money and hedge funds who are already strongly positioned on the short side know that credit booms built on leverage and property speculation are destined to end in liquidity shocks and recession. The contagion in US housing will mean Black Death for asset markets all over the world.

The Fed cannot ease (cut interest rate) as Wall Street naively expects, amid such monetary madness. Watch the Treasury bond yield hit 5%, gold and oil fall below US$400 and US$35 respectively.

The bull is tired and vulnerable. There is debt pyramid in the financial markets that makes credit contraction and a liquidity shock inevitable. Sometime next year, American housing will cause the global ATM machine to spew leprosy, not cash. Stock markets will crash. The next big emerging markets blow-up will be intercontinental and far reaching, with almost no place to hide.

In this scenario, sell everything, sit on cash and go to the beach