Why are stock markets around the world going up so fast? Has the economic situation improved? Are people going back to work? Many investors and professional pundits alike are from Missouri. SHOW ME THE EVIDENCE FIRST PLEASE. The fact is that many recoveries are lead by monetary injections by governments which create a wave of monetary liquidity (lots of money) which has to be put to work. Two levers are at work here. One is to keep short term interest rates low and the other is pump money, and lots of it into the system. Voila! Markets react and this time is no different. Here is a “reality check from the good people at Morgan Stanley which says it better than I could scribe:
Reality check: One of our key macro themes for 2009 has been the emergence of a new global liquidity cycle powered by massive monetary stimulus, which should help to support asset markets, end the recession and prevent lasting deflation (see “A New Global Liquidity Cycle”, The Global Monetary Analyst, January 14, 2009). A little more than four months later, it is time to review the evidence that has accumulated since then and discuss whether the theme is likely to have staying power for 2H09. In short, our conclusion is - yes, it is. Read More
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