Exaggerated Pessimism

The Mannheim-based ZEW Center for European Economic Research reported that investor confidence in Germany dropped to the lowest in almost 15 years in December as rising credit costs dimmed the outlook for economic growth, the lowest since January 1993.The U.S. housing slump has pushed money-market rates to the highest in at least six years, adding to record oil costs and the strongest euro ever in hurting companies. Investors expect the credit squeeze to continue beyond the first quarter of 2008.

The gloom reflects investors' concerns about the economy both in Europe and the US.

UBS AG, Europe's largest bank by assets, yesterday said it will write down $10 billion in subprime investments, the biggest such loss by a European bank.
The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion and trigger a substantial recession in the U.S, however WorldWatch think its unjustified that Banks are concerned that liquidity would dry up at the end of the year.

Most European nations that export goods know the euro's 11 percent advance against the dollar this year is making European exports less competitive abroad, adding to investors' concerns.Domestic demand may not offset a fall-off in foreign sales as oil-driven inflation is sapping consumer and company spending power. The price of oil has gained 44 percent this year.