China Stimulus Gooses Stock Markets
Stock markets were goosed on Friday by news of additional stimulus by China's central bank. Rates were cut, making credit cheaper, which - it is claimed - will spur incremental lending by banks to businesses.
On the other hand, we can understand markets responding to the news from China. After all, any stimulus policies represent bubble-blowing in various asset classes, including stocks, bonds, housing...and on and on. Even commodities, which have had a negative year, are descending from blown-up levels. Hey, the money has to go somewhere. And since it clearly hasn't done much for normal economic activity - despite the endless and continuing headlines about things "picking up," headlines which we've all watched with bated breath since 2009 - the same can't be said for financial assets. That's where all the money-printing stuck. That's why financial assets continue to elevate.
So who benefits from all this central bank action? You? I know it's not me. Do you know someone who has benefited? Financial services traders, bankers and execs don't count. We already know they continue to collect outsized bonuses. That's another place all the money goes: bonuses for the money guys.
In response to all this, those who are heavily invested in stocks continue to watch their financial assets skyrocket despite all those warning bells tolling in the minds and words of the stock market naysayers. For those of you enjoying this latest goosing, we may be close to the next phase of this historic bull market, i.e., the third phase. That's where all those who make up the "wall of worry" that's supported this bull stop worrying and start buying. It's the phase that give one last grand goosing to the price of stocks and sucks in all those mom and pops who, as they always do, jump in at the last moment only to suffer the inevitable fall that wipes out another tranche of their hard-earned money.
Surely that's not something we look forward to, but it's surely something we'll see. The question, though, is when. Whenever that might be, it's not now.
Global equities extended gains after China cut its benchmark...The theory that monetary stimulus ignites economic activity remains firmly held by economists, or at least some economists. Isn't this curious? After all, central bank stimulus in the form of negligible short-term interest rates and historically low longer-term rates around the world since the 2007-2008 financial debacle, and multiple rounds of QE by the U.S. Federal Reserve Bank, the Bank of England, and now, apparently, by the European Central Bank, never mind the Bank of Japan, which invented QE, has produced economic activity that could be pinpointed somewhere between nothing and next-to-nothing. But it seems hope springs eternal.
On the other hand, we can understand markets responding to the news from China. After all, any stimulus policies represent bubble-blowing in various asset classes, including stocks, bonds, housing...and on and on. Even commodities, which have had a negative year, are descending from blown-up levels. Hey, the money has to go somewhere. And since it clearly hasn't done much for normal economic activity - despite the endless and continuing headlines about things "picking up," headlines which we've all watched with bated breath since 2009 - the same can't be said for financial assets. That's where all the money-printing stuck. That's why financial assets continue to elevate.
So who benefits from all this central bank action? You? I know it's not me. Do you know someone who has benefited? Financial services traders, bankers and execs don't count. We already know they continue to collect outsized bonuses. That's another place all the money goes: bonuses for the money guys.
In response to all this, those who are heavily invested in stocks continue to watch their financial assets skyrocket despite all those warning bells tolling in the minds and words of the stock market naysayers. For those of you enjoying this latest goosing, we may be close to the next phase of this historic bull market, i.e., the third phase. That's where all those who make up the "wall of worry" that's supported this bull stop worrying and start buying. It's the phase that give one last grand goosing to the price of stocks and sucks in all those mom and pops who, as they always do, jump in at the last moment only to suffer the inevitable fall that wipes out another tranche of their hard-earned money.
Surely that's not something we look forward to, but it's surely something we'll see. The question, though, is when. Whenever that might be, it's not now.
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