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Consumers will punish the financial system for governments exuberant money printing – Be careful on equity market ‘rallies’ into next year.

Posted by Adrian on November 28, 2008

Basically by default the consumer will punish the financial system and send the whole world into a harsh, prolonged recession, by simply saving or trying to pay down debt.

The central banks and politicians have become obsessively insane trying to rescue the worlds financial system.

They have however been successful in creating extreme volatility in the global stock markets, confused the markets and now will drain any amount of money left in sovereign funds, governments funds, councils etc. So essentially the are destroying any ability to retain an financial footing in anything.

They will print money and destroy the value of developed countries and their currencies.

Almost a blinded insanity, similar to allowing over leveraging and risky business continue to leverage, like the major banks (Citi group), mortgage giants Fannie Mae and Freddie Mack and the voodoo accounting from AIG. All have been saved thanks to the US taxpayer, via an obsessive economic process, which has become a repetitive nightmare of non resolve. Yet they keep at it! They keep repeating the same crazy ideas that they can ‘bailout’ the world with our money.

The punishment if you can call it that, is despite the governments and their central banks best efforts to keep us spending, we won’t (metaphorically speaking). Business will still de-leverage and shrink or become non exsistant, consumers will tighten and save just to try and survive. So adding stimulus from government accounts to consumers will initiate the opposite; people will begin to horde. Not so much for wealth, but to pay the bills, eat and pay down debt. Spending and over consumption which is the reason we are in this mess, will pretty much not occur.

These stimulus packages and rate cuts are intended for equity markets rallies – a misguided theory on market confidence.

I mentioned in Confused markets, deflation/stagflation threats and our old friend gold. that there will be no extended rallies into 2009. At this point I still stand by that, can US market stage a day 5 rally? Possibly. But at the same time these are ‘bear market rallies’ or a lot short covering. The point being in a market such as the one we are currently in, which is terrible, a sustained stockmarket rally into 2009 is unlikely.

With Japan already in Recession and heading for a deeper one, Asia could implode. Thailand, Indonesia and even China are now showing flash points of civil unrest.

If by nature in oversold stock markets there is stock buying, I would argue in a volatile market that we have; there will be more markets selling. To me the current rallies in the Asian and European, US market are on the back of stimulus talk – nothing else.

The US economy has been shot too pieces, the next shoe to drop for the American economy is the government defaulting on it’s debt.

So economically the world is a mess.

I see some life in the US currency till then end of the year. More so the Japanese YEN, Gold is looking solid. I would be watching a big Japanese/or Asian bank that could be on the brink.


One Response to “Consumers will punish the financial system for governments exuberant money printing – Be careful on equity market ‘rallies’ into next year.”

  1. […] Posted by Adrian on February 23, 2009 The alarming aspect of a Japanese bank (Norinchukin Bank) that has just filed for bankruptcy protection is that it was bank that was not listed on the public markets. It was a private bank with over 4000 investors. Although it will be large enough to cause a ripple effect through the Asia markets in particular causing the HK dollar and iTraxx credit spreads to widen. I did indicate that a Japanese bank could be on the brink, that was briefly discussed in Consumers will punish the financial system for governments exuberant money printing – Be careful on … […]

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