{"id":26630,"date":"2012-01-16T00:12:52","date_gmt":"2012-01-16T05:12:52","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/01\/16\/the-markets-rally-like-it%e2%80%99s-2008\/"},"modified":"2012-01-16T00:12:52","modified_gmt":"2012-01-16T05:12:52","slug":"the-markets-rally-like-its-2008","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/01\/16\/the-markets-rally-like-its-2008\/","title":{"rendered":"The Markets Rally Like It\u2019s 2008"},"content":{"rendered":"

By MoneyMorning.com.au<\/strong><\/p>\n

Global equity markets rallied<\/strong> and have started the year on a positive note. <\/p>\n

It’s as if the markets have completely ignored the global problems that should drive them down. You’ve got the ongoing Eurozone<\/a> troubles. The potentially massive write down of Greek debt<\/a>. An Italian banking sector about to implode… and the economic slowdown in China<\/a>.<\/p>\n

<\/span><\/p>\n

Funny enough, the one bright spot – if you can call it that – is the US economy.<\/p>\n

The US is growing faster than most other developed nations. However, it’s a result of a US$1 trillion Federal Government deficit. <\/p>\n

While the markets take US growth at face value, bad news in other parts of the world is, apparently, good news for stock prices.<\/p>\n

Any bad news in Europe means further ‘liquidity’ gifts from the European Central Bank<\/a> (ECB).<\/p>\n

And China’s poor trade surplus data – the lowest in years, which suggests weaker imports, gives the authorities reason to ‘stimulate’ the economy. <\/p>\n

We know the story. We’ve been here before. <\/p>\n

But it appears markets don’t remember history. Even very recent history. <\/p>\n

We are on the edge of repeating history that occurred less than four years ago.<\/p>\n

Back in early 2008 the S&P500 rallied after declining for months. Everyone thought the ‘worst was over’, especially considering the Federal Reserve had lowered interest rates aggressively in the preceding months. <\/p>\n

Stock prices started climbing around March 2008 and peaked in May, two months later. The charts below show the period for both the S&P500 and Australia’s All Ord’s index. <\/p>\n

At the time, the market rally felt like a recovery. There were few market commentators expecting further falls. They weren’t looking at the big picture, which was telling the story of a burst credit bubble<\/a>. <\/p>\n

<\/p>\n

D\u00e9j\u00e0 Vu – Beware the Bear Market Rally<\/div>\n

<\/strong><\/p>\n

\"$SPX<\/a>
Click here<\/a> to enlarge<\/div>\n<\/p>\n
\"$AORD<\/a>
Click here<\/a> to enlarge<\/div>\n<\/p>\n

Again, the market is not looking at the big picture. <\/p>\n

At this point, it’s impossible for the markets to keep rallying without MASSIVE central bank money printing. We’ll get to that point eventually, but not before things get much worse.<\/p>\n

For now, central banks<\/a> have done enough to maintain confidence<\/em>.<\/p>\n

The ECB’s long-term liquidity<\/a> program has bought time for the region’s embattled banks. But this has increased speculation and money flows around the world.<\/p>\n

Given the ECB’s willingness to hold doubtful assets on its balance sheet for a long time (which is what the liquidity program achieves), speculators are now selling the euro<\/a>. A recent story in the Australian Financial Review<\/em> had a story about how the euro is now the favourite ‘carry trade’ currency. <\/p>\n

Meaning banks and other speculators are now betting on a weaker euro by selling the currency and buying higher-yielding currencies, like the Aussie dollar, with the proceeds. <\/p>\n

After China experienced one of the biggest credit booms<\/a> in history, it remains to be seen how central bankers can increase stimulus.<\/p>\n

And the ECB simply bought another round of speculation and risk taking.<\/p>\n

The point I’m trying to make, is to not be fooled into thinking it’s a sustainable recovery. The global problems are still here and will be for a long time… how long this market rally will last thought is anyone’s guess. <\/p>\n

The market might rally like its March 2008, however, it could also be the last leg up before the next downturn.<\/p>\n

Greg Canavan
\nEditor, Sound Money. Sound Investments<\/em><\/strong><\/p>\n

[Ed Note: Standard & Poor’s recently downgraded the credit rating of several crucial Eurozone countries. Read this article on Europe\u2019s credit rating downgrades<\/a> to find out the key impact this may have.]<\/em><\/p>\n

From the Archives…<\/em><\/strong><\/p>\n

Why Fallen Commodity Prices Mean This Sector is Worth a Punt<\/a>
\n2012-01-13 – Kris Sayce<\/p>\n

Why Australian Banks Are a “Suckers” Investment You Should Avoid<\/a>
\n2012-01-12 – Greg Canavan<\/p>\n

The Fed’s Funny Money Merry Go Round<\/a>
\n2012-01-11 – Kris Sayce<\/p>\n

Silver Price Ready to Explode<\/a>
\n2012-01-10 – Dr. Alex Cowie<\/p>\n

Will the Gold Bull Keep Running in 2012?<\/a>
\n2012-01-09 – Dr. Alex Cowie<\/p>\n

For editorial enquiries and feedback, email letters@moneymorning.com.au<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nThe Markets Rally Like It\u2019s 2008 <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Global equity markets rallied and have started the year on a positive note. It’s as if the markets have completely ignored the global problems that should drive them down. You’ve got the ongoing Eurozone troubles. The potentially massive write down of Greek debt. An Italian banking sector about to implode… and the economic … <\/p>\n

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