Wednesday, August 26, 2009

NEW BUBBLE THREATENS A V-SHAPED REBOUND

ANDY XIE

"A pure bubble tied to excess liquidity that affects one or many financial assets cannot last long. Its multiplier effect on the broad economy is limited. It could have a limited impact on consumption due to the wealth effect. As it neither stimulates the supply side nor boosts productivity, whatever story it is based on will have holes that become apparent to speculators. It doesn't take long for them to flee. Furthermore, a pure liquidity bubble without support from productivity can easily lead to inflation, which causes tightening expectations that trigger a bubble's burst.

What we are seeing now in the global economy is a pure liquidity bubble. It's been manifested in several asset classes. The most prominent are commodities, stocks and government bonds."

OIL has jumped from $35 to over $70 even as there is supply GLUT as demand has waned, the price is based purely on liquidity and speculation.

There is an abundance of housing SUPPLY, this will take some time to rectify. I DONT buy into V shaped recovery, nor do I see how 4 million or so less Consumers can pick up the slack in demand.

SO we have FED and GOV trying to stimulate and reflate. Had they just let nature take it's course in 2000, we would not be here in this mess today.

D

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