I have a question – if government monetary intervention is so bad, why is it the market actually seems to crave it and it responds as if the intervention is what the global economy needs? Yes, why is the Dow trying to bust through 13,000 on seemingly nothing more than the comments of Bernanke and Draghi? Geez, the abysmal GDP report today has not slowed the market down one bit.
One answer is this is a traders’ market, meaning that applying monetary stimulus means a rise in most all asset classes, certainly. Traders as a whole care little for long-term issues, and the effects from government intervention through the monetary side are a ways out, sort of.
Another answer is that the market actually doesn’t see monetary stimulus as bad. Is it possible that the market believes a concerted effort from both Bernanke and Draghi to further liquefy the two continents, along with China’s efforts to stimulate its economy, are bonafide ways to ignite growth on a global scale, thus adding energy to the effort to correct Europe’s, the US’s, and China’s fiscal issues?
The fact is this – Europe’s and the US’s economic problems derive from a lack of confidence, both consumer and business. If confidence can be restored, economic growth will occur and the fiscal issues diminish. Bernanke and Draghi made it crystal clear, both central banks will do whatever it takes to restore confidence, and both have substantial firepower to do so, despite what some learned pundits and some theoretical economists say. China, as well, will continue lending a hand in the restoration of investor confidence in Europe’s sovereign bond market, and it too has substantial firepower to stimulate its economy …
The central Chinese city of Changsha unveiled an 829.2 billion yuan ($130 billion) investment plan, joining peers seeking to shore up local economies as national growth slows. Changsha, the capital of Hunan province, is wooing banks to finance 195 projects, which include an airport and subway lines…
I am not a big fan of authoritarian rule, but in the case of managing an economy, it seems to be working. If only the US could have put aside partisan ideology and created a stimulus package that targeted specific regions of the country, we would be further along in our economic recovery and our infrastructure would be in much better shape. As an aside, that might happen now as the heat wave across the Midwest and in the East is literally destroying vast stretches of roads, parts of airport tarmacs, and a few bridges here and there. Sorry, back on point …
Local governments are stepping up efforts to bolster the economy with the cities of Nanjing and Ningbo saying over the last two weeks they will introduce measures including tax cuts and incentives to boost consumption. “We expect Changsha, Nanjing and Ningbo to start a wave of nationwide stimulus packages, with more announcements from other local governments to come.
Maybe the market is putting the three pieces together and realizing that if a sense of rescue is coming, investors, businesses, and consumers will respond, which is all that really needs to happen for now. The rest will come later as money begins to flow again. In the meantime, earnings have been mixed, but key bright spots keep emerging. The market likes this, as well.
Samsung Electronics Co, the world’s top technology firm by revenue, reported on Friday a record profit of $5.9 billion for the June quarter.
Trade in the day; Invest in your life …
