Monday, August 03, 2009
Posted by Roberto
6:07 PM
0 comments
STOCK MARKETS RALLY, TOO FAR, TOO FAST?
U.S. MARKETS
PREMISE:
March 18, 2009: The Committee decided today to increase the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.
STATUS:
If the market would trade on fundamentals, maybe the march lows would have been lower, and maybe we would end-up retesting those lows, but in a money printing world (Asset prices tend to rise when the government prints money), we kind of throw some of the historical evaluation tools out of the window and we witness everyone being bullish in the U.S. after a 40 percent rise in the S&P.
CHINA
PREMISE:
July 8, 2009: In China the focus of the stimulus was to stimulate lending. China's new lending more than doubled in June from a month earlier, increasing concerns for bad loans and asset bubbles. New lending was 1.53 trillion yuan ($224 billion), the central bank said on its Web site today, bringing total lending this year to 7.4 trillion yuan ($1080 billion).
STATUS:
The Shanghai Composite is up 87 percent this year!
The government is countering an export collapse by flooding the economy with money to fuel domestic demand. Rapid credit growth poses a risk to the nation's lenders and a concentration of credit in some industries and businesses may damage the stability of the financial system, the banking regulator said yesterday.
"Excess liquidity is fueling speculation and that means asset bubbles and wasteful investment," said Isaac Meng, a senior economist at BNP Paribas SA in Beijing.
Fear the Dark Side of China's Lending Surge
RMB 1.5 trillion in new Chinese lending, can we turn this thing off?
DANGER:
If China starts falling, the U.S. market can follow...
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