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‘Conveyor belt of death to suck down markets 20%’

The financial markets are entering the worst banking crisis in decades and the stockmarket is set to fall by another 20 per cent, says Blue Planet Investment Worldwide Financials Investment Trust manager Ken Murray.

He warns that liquidity issues are causing continuing problems in the money markets and banks are increasingly unwilling to lend to other banks that they perceive to be risky.

Murray says: “We are entering one of the greatest banking crises in decades. The credit cycle has turned, bad debts are soaring, banks will go bust and stockmarkets will fall much further. People need to be told the truth as opposed to being spoon-fed palliative words.”

He says the “conveyor belt of death” – loans drawn down with cash going out and being replaced by highly illiquid, poor quality assets – will “suck the liquidity” out of investment banks and fill their balance sheets with bad debts.

“I would not be surprised to see one or more of them become insolvent in the near future.” he says.

F&C UK growth & income fund manager Ted Scott says he believes the market has further to fall before valuations are attractive again.

He says while the market has fallen 10 per cent since mid-July, the same amount as in the correction last May, it will not bounce back quickly as it did last year. He says this is because there is an earnings’ bubble and the reining in of debt will hamper consumption resulting in downgrades and economic growth figures disappointing into 2008.

Scott says: “The consumer, pumped up on cheap credit has kept the economy ticking but, given the record levels of indebtedness, consumers will now want to rebuild their savings, particularly if unemployment starts to rise.

“This is not yet factored into market expectations which still discount a soft landing. My view is that equities have further to fall before they become att-ractive again.”

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