Although Cash rewards minimal interest but one day it will become Cash is King, when purchasing power dries up.
The stock market rally taking place since new year when all people, including Fund managers and Fung-shui masters were forecasting Low for first half 2012 and High for the second half. I immediately had the feeling of the opposite. My thinking was simple. Hedge Funds, being like the casino bankers now have the bets. In a casino, no one knows what the dices are until the cover is moved. In the stock market, it is immoral that investment banks were making much negative tone while selling lots of derivatives, mainly Put warrants and Bear papers. All of a sudden, they changed to positive tone and then all the Bears were decimated, making billions of dollars pouring into their pockets. The next step, they are to sell Call and Bull warrants, when people believe economy is to recover.
There are of no significant changes between now and a year ago. European debt crisis still remains crisis. Greece may eventually end up with a 'Solution', but Greeks will begin to survive a hard time for years after. It is surprising that in the rising stock market few people talk about Italy, Spain, Portugal, Ireland..., all of which have the similar fate, though in a less intensified degree. Europe is going to fall into recession, given the fact that all governments are adopting a stringent expenditure attitude. China, by far the richest country in term of national reserve, may give a hand to Europe. It is without doubt that would be under spiny conditions, which might not necessarily be disclosed.
On the front of the U.S., the government is very hesitant to exercise QE3. As a matter of fact, QE1 and 2 did not bring the desired effect, and it will need the Congress to approve a higher ceiling for national debt which is already larger than they could afford.. There were still thousands of mortgaged houses surrendered during 2011. The recent economic data had a slight improvement but I don't see the real difference of unemployment rates between 8.7% and 8.4%, bearing in mind that people out of jobs over 6 months were not included. We know in U.S., personal consumption accounts for 70% of the GDP and there is a sign of decreasing household expenditure. Thanks to the advent of science, computer technology is the main pillar of the U.S. economy.
My outlook of the global economy:Europe will have another recession - known as double dip. U.S. will remain flat. One or two percent GDP growth is nothing, offset by a detrimental inflation. China has been boosting self-consumption, understanding they cannot rely much on exports, and it could not be autarky as well. Hong Kong - I don't know. If one day we could hear no putunghua in Canton Road, we are finished.
I remain 'cautiously pessimistic'. I add 'cautiously' because I need to defend when Hedge Funds are joining together to push up everything (for the sake of killing bears). That is what we are seeing now in the stock market.
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