Since Mar 09, 2009, the stock market has rallied over 30% in about 2 month.
Not only in US, but in surrounding area (i.e. Canada), stock market and even housing market entered a strong bull run.
"Voila, here is the recovery!" some pundits say.
Not so quick, the others say.
I'm one of the later.
By no means, I'm a professor or scientist in economy (even though my major was economy in university). None of my titles gives me any more qualification than any of you, my dear reader. But if you care to read on, I'd like to share my thoughts - which I found interesting.
first, WHY?
Why there was a rally across the world? Is it really economy turned around? There are SOME statistics came out since March that showed a slowed deteriorate, however, nothing really indicates a turn of direction in economy activities.
The strongest argument for a reason for the rally was "investors usually predict recovery ahead of real turn of the economy". However, not only it doesn't mean this type of prediction is always right, but also this rally is far more volatile than previous "prediction rallies".
So, second question is "WHAT"?
Then what had happened?
International hot money, need to park their money.
Because in the past two decades, the wealth distribution is lean towards elites (if you think all the out sourcing money went to Chinese or India citizens evenly, you have really kind wishes)
The out sourcing of American manufacture and services, while distributed wealth out of US, created thousands of super rich foreigners, who controls huge portion of some countries wealth.
The imbalance is one of the key reason why the recession came - those belong to these elite groups(they may be American, or foreigner, they may be individual or institution), can hardly extract more value out of American enterprises and consumers - a structure issue causing economy to stop growing in the way it grew in the past two decades.
The stimulus announced by governments all over the world, has been nothing but re-bubbling measure. Since the economies have long been controlled by these elite groups, any short sighted attempt to shore up the economy is actually enabling the elite groups to spend more. Pathetically the governments figured to "enable" the elite groups to spend more, they need to be given more. So all the stimulus are focused on "let banks lend more" and "government spend more".
Unfortunately, because the fundamental issue was structure wise, ordinary people control smaller and smaller portion of the world wealth, hence the elite group feel it's harder and harder to extract value out of ordinary people, so no matter how much money governments give them, the elite groups won't invest in real economy much, because no matter how hard they try, there is simply not enough money in the hands of ordinary people for elite groups to earn.
Of course the elite groups won't put their free loans unused. So they park their money in virtual economy - stock market, housing market of some countries (like Canada), commodity (Oil, and gold) and currency (i.e. anything but USD and JPY).
These hot money caused real shake of the global markets. Oil has nearly doubled, stock rose more than 30%, Euro rose more than 10%.
third, then what?
Then there will be even worse recession. I don't know how long will the current rally last, I would say months instead of years, because those money are free loan, and if they were not put into real economy, they are not helping fundamental (think about a stock you own, by spending most of the money in buying that stock share, you are not helping that companies balance sheet, hence the next quarterly report won't be that good).
All this is creating a second stage bubble, causing the underline structure issue be hidden longer, and make damage to real economy deeper.
Yes you heard me right, seeing the world investment markets boom so quickly in the past three month, (which coincide with the injection of governments money into "economy"), I'd say this will actually make recovery slower, because the private sector who got the money, did not believe in real economy, and instead of participate in real economy, they chose to play in the investment markets.
Not only this means the money government injected did not help real economy, but also it re-creates the crazy investment mentality which was another key reason why the bubble was formed initially.
The governments help to the elite groups served nothing more than a moral hazard - people have already forgotten the burn and rushed back to investment market like crazy.
Reckless led us to here and reckless is back, along with renewed enormous amount of money given to them by the governments, do you think this will help us?
I don't.
