Next crisis on the horizon?

It’s a good thing Washington bailed out the banks and rescued the financial system with all those trillions of dollars. Otherwise, we might have to take the following articles seriously:

„Mobius Says Fresh Financial Crisis Around Corner Amid Volatile Derivatives” (Bloomberg)

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

„We Will Have Another Crisis…” (Money)

Few mutual fund managers could pull off what Robert Rodriguez did. During the tumultuous 2000s, his FPA Capital stock portfolio, which is closed to new investors, managed to earn an annualized 9% even as the S&P 500 lost money.

At the same time, he also co-managed FPA New Income, a bond fund that earned a spot on our Money 70 list of best funds.

Rodriguez, 62, is known for thinking big: In early 2007 he laid out a detailed case for why housing debt could trigger a crisis. Now he’s just as worried about the federal debt.

Rodriguez took a sabbatical in 2010 — he traveled the globe, read about the fall of Rome, indulged his car-racing hobby — and has returned to FPA as CEO, with an advisory role on the funds. He spoke with editor-at-large Penelope Wang; the conversation has been edited.

Before my sabbatical, I told clients that if present trends in government continue, we will have another financial crisis within three to seven years — by 2018. I still believe that. We still have time to start the process of fiscal rectitude. But the window of opportunity is shrinking because 2012 will be an election year, when nothing happens.

„Bond Expert Gundlach: Housing Collapse to Spark Second Financial Meltdown” (MoneyNews.com)

The housing meltdown hasn’t ended yet, and it could ultimately spark another financial crisis, says renowned bond fund manager Jeffrey Gundlach, CEO of DoubleLine Capital.

“The housing market is dropping . . . and about to go to a new low,” he tells CNBC. „I think we’re looking at some type of echo in the credit crisis coming up here. That’s what I’m afraid of.”

„Banks Warned Impossible to Prevent New GFC” (Business Spectator)

Basel Committee for Banking Supervision secretary general Stefan Walter has warned that it will be impossible to prevent a repeat of the financial crisis that rocked global markets in 2008, according to The Australian Financial Review newspaper.

Mr Walter told the newspaper that regulators should take measures to strengthen the industry so it may withstand such events in the future, a process that would inevitably lower returns for bank investors.

„As long as we continue to have rapid innovation, I think in the future we’re again going to have some very complex interactions which we won’t understand,” Mr Walter told the newspaper.

„Still Too Many Latent Triggers of Next Crisis” (Financial Times)

How long before we confront a new financial crisis? Usually a severe shock to the financial system damps risk appetite for some considerable time. Economies have to recover, bank capital has to be substantially rebuilt and debt workouts, which can take 10 years or more, have to be far advanced before trouble brews anew.

However, if the core ingredients of a financial crisis are boundless optimism, excessive leverage and overpriced assets, then we are already in dangerous territory less than three years after the collapse of Lehman Brothers.

Consider the state of asset markets. Commodities remain overblown despite the setback that recently overtook silver and subsequently spread to other markets. Developed world government debt markets look seriously overpriced in the light of the slow response to spiralling fiscal deficits in the US and elsewhere. While US house prices have collapsed, those in the UK look far too high in relation to earnings.

In equities, we have a new internet bubble with shares in the likes of Facebook, LinkedIn and Renren trading on absurd multiples of revenue. As for credit markets, lending standards are falling and covenant-lite lending has staged a comeback.

This is largely the work of developed world central banks, whose monetary policy response to the last crisis threatens to sow the seeds of a new crisis, just as Federal Reserve policy did in the US after the dotcom bubble burst. Meanwhile, the banks remain vulnerable. While modest progress has been made in deleveraging, the capital regime proposed by Basel III looks inadequate to anyone other than a boundless optimist and banker.

„Take Back the Future” (Former British Prime Minister Gordon Brown, Newsweek)

In 2008, when we were hours away from ATMs running out of money, small businesses being unable to pay their staffs, and schools and hospitals closing down through lack of cash flow, it felt as if the crisis of the century was upon us. But if the world continues on its current path, the historians of the future will say that the great financial collapse of three years ago was simply the trailer for a succession of avoidable crises that eroded popular consent for globalization itself.

Those who believe that the world has learned from the mistakes that led to the crash are mistaken: on the contrary, Prof. David Miles of the Bank of England now predicts not just one further financial crisis but three in the next two decades; and Andrew Haldane, also of the Bank of England, is already charting the volatile and unsustainable wave of speculative capital flows that are still not fully monitored and operate with no early-warning system, no global financial standards, and no consensus on capital and liquidity requirements for banks.

„Sprott Says Banks Have Too Much Leverage on Balance Sheets” (Bloomberg)

Eric Sprott, the Canadian money manager who in 2008 predicted banking stocks would collapse, said U.S. savers will eventually pull their money out of banks that are carrying too much leverage on their balance sheets.

Banks are levered 20 to 1 and their portfolios are mainly comprised of government bonds and mortgages, the founder of Sprott Asset Management Inc., said today at the SALT, or SkyBridge Alternatives, Conference in Las Vegas.

“House prices keep going down, the number of people under water keeps getting worse,” said Sprott, 66, who is chief executive officer of the Toronto-based firm. “That leverage is going to work massively against anybody whose lender is in that area. The dominoes are starting to fall.”

Nothing to see here. Move along.