Monday, May 11, 2009
Market Rally Has Little To Do With Real Economy
Some of you may know that I am holidaying in Sydney now, but rest assured I will still be blogging on a daily basis. So far, the sector rotational picks have done well, so enjoy. As with the market's trend, I will always be asked, "eh, can continue aahhh?" To which I will reply, probably yes. Even my relatives here expressed surprise on the global turnaround on stocks.
My view is that things are shaping a lot better for equities than for the real economy. To those who still think the real economy is still pretty bad, I totally agree. However, reading the markets require more than an astute analysis and prognosis of real events. Markets are made up of liquidity, a lot of it has to do with confidence and trends.
I have stated that the governments everywhere have poured much too much liquidity to wrest the global economy from the current crisis. I am not here to say whether they should or should not have done that (well, they should not really), but to assess the consequences.
A lot of the liquidity injected has been parked by the sidelines, and it will take a minor confluence of positives to bring some of these funds back into the markets. There are still plenty who are apprehensive on the market's rally. When this group finally gives up and decides to join the rally, then we will have a minor correction, till then its pretty positive.
This is a rally punctuated with liquidity and revival of confidence. we can argue that the confidence can be slightly misplaced, but when it snowballs, its a pretty potent factor.
First level of resistance at 1,048 which I mentioned a week or so back. Any correction will be swift and shallow. I don't want to sound too bullish but the signs are pretty good even for this rally which may only be for another month or so.
p/s photo: Angelababy