The U.S. financial market is like the Mecca of the financial industry in the world. What happen in the U.S. will eventually affect the world sooner or later, it's a domino effect. The world also suffer when the U.S. economy collapsed. A good example is the credit crisis in 2008, when the bubble pop, the world economy collapse with it and stopped functioning, including those with the strongest economy such as Singapore, and China.
With S&P rising higher than ever and the Dow broke its record high, when will the bear arrive? Or will there be another crisis, or the economy is in new financial bubble? With all the hype, some economic indicators can be put into considerations, such as 0.25% interest rate and the continuing quantitative easing (QE). The two correlate one another, and maybe the reason behind a high rising index in the U.S. is due to cheap overflowing money from the federal reserve, the financial industry are putting more money in the equity market and creating more loans (hopefully not a toxic one). At the end of Q2, U.S. economy is showing a recovery with GDP increased by 4%, over expected by many analysts. Is this a good thing? In a way it is, but at the same time it might not be so great for the equity market, but thankfully Janet Yellen decided to keep the QE until next year (perhaps).
Traders, investors and bankers have been indulged with cheap money for approximately five years since the credit crisis. As it is shown on previous blog (A Possible Higher Interest Rate), the Feds have bought a total of $2,4 trillion worth of treasury securities since the crisis to stimulate the market. Perhaps it is what Keynesian would do under this circumstances, but the stimulus should not only be an expenditure in the financial market, maybe it can create an expenditure in something real such as infrastructures or consumer goods. This way the beneficiary is not only in the financial sector, broader market will also feel the benefit of the economic stimulus and can also hedge the economy if one of the sector starts to crack.
What will happen when the Feds decide to raise the interest rate and stop the QE? Wouldn't this be a shocker in the market? The market seem to have develop the herding behavior for the past five years. Cheap money, low interest rate, and not to mention near zero yield on US treasury which makes investors and traders to take higher risk and find a higher return in the market. Once the Feds think it is OK to pull the QE and increase the interest rate, the market will think that it is not OK because the impact from Feds action will increase the market's cost and there will be no more cheap money in the market. Most likely the financial market will go down the drain as market makers are scared and will take short positions in the market. The question is, when will this happen? will it happen right before or after the Feds execute? Hopefully the answer will be discuss on the next blog.
With S&P rising higher than ever and the Dow broke its record high, when will the bear arrive? Or will there be another crisis, or the economy is in new financial bubble? With all the hype, some economic indicators can be put into considerations, such as 0.25% interest rate and the continuing quantitative easing (QE). The two correlate one another, and maybe the reason behind a high rising index in the U.S. is due to cheap overflowing money from the federal reserve, the financial industry are putting more money in the equity market and creating more loans (hopefully not a toxic one). At the end of Q2, U.S. economy is showing a recovery with GDP increased by 4%, over expected by many analysts. Is this a good thing? In a way it is, but at the same time it might not be so great for the equity market, but thankfully Janet Yellen decided to keep the QE until next year (perhaps).
Traders, investors and bankers have been indulged with cheap money for approximately five years since the credit crisis. As it is shown on previous blog (A Possible Higher Interest Rate), the Feds have bought a total of $2,4 trillion worth of treasury securities since the crisis to stimulate the market. Perhaps it is what Keynesian would do under this circumstances, but the stimulus should not only be an expenditure in the financial market, maybe it can create an expenditure in something real such as infrastructures or consumer goods. This way the beneficiary is not only in the financial sector, broader market will also feel the benefit of the economic stimulus and can also hedge the economy if one of the sector starts to crack.
What will happen when the Feds decide to raise the interest rate and stop the QE? Wouldn't this be a shocker in the market? The market seem to have develop the herding behavior for the past five years. Cheap money, low interest rate, and not to mention near zero yield on US treasury which makes investors and traders to take higher risk and find a higher return in the market. Once the Feds think it is OK to pull the QE and increase the interest rate, the market will think that it is not OK because the impact from Feds action will increase the market's cost and there will be no more cheap money in the market. Most likely the financial market will go down the drain as market makers are scared and will take short positions in the market. The question is, when will this happen? will it happen right before or after the Feds execute? Hopefully the answer will be discuss on the next blog.
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