Friday, June 12, 2009

Assumption on My Pessimistic View on Stock Market

My assumption is: expectation eventually cannot restart the actual economy without a substantial shift of paradigm: i.e. a return to value creation but not price chasing. The current measures only encourage short term trading on selected market; the aim is to "save" the banks and institutional investors at the hope that they can loan money to support consumption again.

Nevertheless, the problem is apparent: while bank is willing to lend money for securities and for ARM, it tightens up credit available to consumers (as reflected on credit card) and corporates (as reflected on commercial rate). Even for the property market, the mortgage rate for longer term fixed rate is higher than 6 months prior (with spread the highest). The problem is "contained" at the bank level but not spreads to consumer and corporate level. Consumption and new technology (be if green or IT or bio-tech) cannot advance. Economy cannot really recover but maintain at a lower equilibrium point than previous.

Without new supports, even speculators will one day run out of interpretation to boost the market. By that time they will leave the market, and it will be when the market hits lower point.

No comments: