The Coming Credit Crunch


The recent stock market correction, mostly triggered by both the perception and reality of a burgeoning credit crunch in the real estate sector, has driven most media coverage regarding the robustness (or lack there-of) of the overall investment markets. For managers of emerging and middle market companies, the questions that naturally are a) is this credit crunch real and will it continue and b) how will it affect their access to capital -- both debt and equity?
Here at Growthink we do not portend to be market prognosticators. We do strongly believe, however, that long-term emerging and middle market investment fundamentals have never been stronger. These fundamentals include:

  • As outlined in our July 31st newsletter, the combination of strong world GDP growth, trade growth, and worldwide Internet and mobile communication technology adoption rates provide the opportunity, for the first time in human history, for emerging and middle market companies to have regular access to global capital. So even if the U.S. capital markets correct somewhat, more so than ever before, this correction can be and is being cushioned by global investment players.
  • There is a strong record of counter-cyclicality between the real estate market and emerging and middle market investing. This is particularly true regarding venture capital and private equity investing -- the fundamentals in these markets in 2007 look attractively similar to those in the mid -1990's -- the time of the last serious real estate credit correction and the beginning of one of the great venture capital and private equity investment markets of all time.


So while without question if this credit crunch continues and worsens (both in reality and perception) it will trickle down to all investment sectors. Overall investment fundamentals remain strong, however, and will continue to provide much opportunity for entrepreneurs and managers with well-thought out investment and growth plans and objectives.

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