Morgan Stanley's Jim Caron Says Credit Crunch To Unfold Slowly Over Time: 'Not A Sudden Shock Event'

Morgan Stanley Global Balanced Funds co-CIO Jim Caron reportedly said although he expects a credit crunch to occur, it would happen over a long period of time and not pan out as a sudden shock.

What Happened: "There’s going to be a credit crunch, not a credit crisis. But that credit crunch is going to take place over a long period of time. So, it’s not a sudden shock event that creates a sudden stop in markets, that creates that type of contagion effect that one would normally associate with a more systemic type of a problem," he told Bloomberg TV.

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Caron also said that along with a tightening of credit conditions that’s going on, there’s an easing of interest rate conditions as well. "Rates have come down a lot, so there is a balance that we have to think about," he said.

Spillover: When asked about how contained is the macroeconomic spillover from the recent banking turmoil, Caron explained the case of the declining dollar.

"It’s actually peaked somewhere around the beginning of the fourth quarter of 2022. We’re not seeing necessarily CDS spreads widen substantially further than where they were before. Money markets, liquidity in the markets are are still working well," he said.

Caron further argued that natural signs of a systemic shock aren't being seen. "…typically you see that with a spike in the dollar value because that’s where a lot of long-term liabilities are placed and people need to buy dollars to cover their risk and we’re not really seeing that. So, I would say at this point that much of this has been pretty well contained," he added.

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