US market rallied 300+ points yesterday. If you read the news, there are many analyst who comment on why the markets are rallying. In channel news Asia, it says: US market rally on hopes of economic growth. On CNBC, ex Fed reserve chairmen alex Greenspan says EURO is in big trouble and is slowing down US growth. As reported, New home sales fall to five month low in July. If the report is bad, then what is causing the rally. In Asia, most stocks are up yesterday. With so many news and comments, how will you analyse the situation?
In my view, I think the economic situation is still very unstable. People are hopping that the Fed meeting on Friday will produce new stimulus to boost the economy. I do not believe that they will cone out with any and thus may cause the markets globally to tank again. People are buying on hopes and if that hope is dashed, then there will be another round of panic selling. In Singapore, CPI rose 5.4% which indicates the rise in inflation. We're in a ballooning situation which may burst anytime. Prices are rising rapidly but salaries have nit been rising as much. Worst still, many young people are living in debt and credit. If the global situation worsen and Singapore is affected, then those who are caught unprepared will suffer the consequence.
We're now in a very similar situation as what happened in 1930s, the great depression cycle. What caused the great depression was also the austerity measures which is the cutting of spending. Before the great depression, the government was also trying to stimulate the economy by injecting huge funds which send the markets up. After that, they thought that the markets is quite stable so they stopped the stimulus which send markets going sideways for a period of time. Just before the depression, the government introduced various measure to cut spending and then it happened.
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