“One amazing aspect of predicting stock market is, you get 60% chance of being right following concensus, standing against it, however, increase your chance to 70%”
The China stock market will continue to rise, even though it has doubled in the past 10 months. Will it return to 2008 peak level again? Who knows, -sky is the limit!
PBC will continue to flood the market will liquidity. It doesn’t have a choice as long as Fed keeps printing money. In a sense all central banks are in a prisoner’s dilemma. They all know that the crazy monetary policies undergoing will lead to serious problems, such as inflation in future. But everyone’s dominant strategy is to continue to print money. The current financial system is as such that inflation is no longer a domestic issue. At the center of the problem, Fed will continue to create liquidity. Bernanke doesn’t have a choice either: US’s high level of indebtedness inevitably leads to deterioration of US dollar’s credit, which at the end of the day is the same things as depreciation. No wonder he chooses to do it decently.
Companies will start to buy stocks or other assets due to lack of investment opportunities in business and the weak economy. The inflation expectation that is building up will further stimulate investment incentives. In short term these will keep stock market on the run.
The past trend of asset commoditization through financial instruments made it harder to distingush between inflation and asset appreciation, which ultimately might be the same thing. The increase in asset value has to be justified by increase in asset return in future, either through increase in volume or increase in unit price. Viewing the world asset as a whole the latter should not increase asset value, because of a higher discount rate factoring in high inflation expectation. But in reality that seems not to be the way market thinks. The incapability of market to properly price in inflation leads to higher volatility, -everythig collapses when inflation is at the door.
So the next scene is likely to be: A global bull market makes everything looks rosy again in the next one or two years (or longer, or shorter), then when inflation seems inevitable, market collapses again. In this case,the best way to avoid risk is to take risk in stock market now.
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