Stocks Poised to Boom Today

The futures markets currently indicate that stocks will rally big-time today on the news the Fed is teaming up with other central banks to “lower the pricing on the existing temporary liquidity swap arrangements by 50 basis points.” Also, Kourtney Kardashian is expecting again, though the first news piece is probably a lot more important. Skipping all the econo-speak, the idea is that the central banks will provide liquidity to Europe.

My suspicion, again, is that this isn’t what’s wrong. The problem isn’t a lack of liquidity, though that’s nice to have. The problem is that there’s too much debt and that has to be wound down. That process is going to be long and painful. What the world central banks are doing is almost like pouring high-grade gasoline into a car that doesn’t have any wheels. Now they’re baffled that it doesn’t seem to be doing the trick.

The immediate market reaction will be that all the “risk assets” will go much higher, and that’s what we’re going to see today. Expect big moves in gold and cyclicals.

The other news is that China is lowering the reserve requirement for its banks. The mess in Europe has clearly been hurting China. For the third quarter, the Chinese economy plunged all the way down to a growth of, ready for this, 9.1%. Don’t laugh; that’s actually the slowest pace in two years.

So the People’s Bank of China has said that it’s cutting the reserve ratio for banks their by 0.5%. Check out this chart which shows that Chinese exports to Europe have been “falling off a cliff.”

Posted by on November 30th, 2011 at 8:52 am

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