This morning, the markets are looking wonderful. All the Asian markets were up with the Nikkei (Japan), Kospi (S. Korea) and Hang Seng (Hong Kong) up 10%+. The European markets were way up right out of the gate. And despite bad GDP figures coming this morning out of the U.S. at 8:30ET, .S. index futures are looking good as well.
It seems we are having a bit more than a dead cat bounce here. Maybe this one has legs.
I sure think this rally has legs. Call it the Christmas rally, the election rally, whatever — we are stringing together 2 or 3 consecutive days of up markets in Asia and Europe. Catalyst for the good overnight action in Asia was the Fed providing swap lines for a number of emerging market countries where financial institutions are having trouble rolling over dollar-denominated debt. And the IMF got into the swing of things by providing new funding for emerging market economies in need.
So, the monetary authorities are pulling out all the stops by lowering rates, flooding the market with liquidity and doing anything else they can to avert crisis. Their actions are paying off and seem to be reflating the economy by easing credit spread, thus boosting equities.
While I do like to see the panic ease, I would prefer a little more systemic management of financial institutions (i.e. shutting down bankrupt over-lenders) and a little less easy money. Over the short-term, Central Banks and national governments have had little choice but to provide massive liquidity because we were headed for depression otherwise. Now, it is time to start thinking about a systemic approach to this problem instead of just throwing money at it.
One reason markets everywhere are reversing course — stock markets up, Treasury yields up, Gold and silver prices up, commodity prices up, Yen down against the Euro and the U.S. Dollar, The Dollar down against the Euro, Pound, and Australian Dollar — one reason we are seeing all of this is that the liquidity being provided is stopping the deleveraging which is at the center of the market upheaval.
It’s not like all of a sudden the clouds parted and the sky turned blue and we are all coming out to enjoy the fruits of our labor. A nasty downturn is still baked into the cake. The fact of the matter is the easy money has stopped the Great Unwind and leveraged players can breathe a sigh of relief. Again, I am all for it because I did not want Financial Armageddon any more than you did. But easy money is easy money. And we know where easy money leads.
Related posts
Random musing: forced liquidation
De-leveraging
The panic is over
The carry trade unwinds and its not pretty
Source
Pre-Market Data – CNN Money