Speculation has officially gone free-money-mad in the world. Liquidity-dumps from governments are once again pumping bubbles around the globe as reckless players clamour to drive fast, drunk and without any saftey gear. Chinese analyst Andy Xie writes today:
“This round of monetary growth has mainly fed speculation, not credit demand for consumption or investment. Speculation has reached a dangerous point with the oil price threatening to reach triple digits again. Its implications for inflation may spook the central banks to raise interest rates quickly and trigger another crash. The excess money supply has created a new liquidity bubble…
The case for a double dip in 2010 is already strong. Inventory restocking and fiscal stimulus are behind the current economic recovery. The odds are quite low that western consumption will pick up when the recovery runs out of steam next year. High unemployment will keep incomes too weak to support spending.
Many analysts argue that, as long as unemployment rates are high, more and more stimuli should be applied. As I have argued before, the demand and supply mismatch rather than demand weakness per se is the main reason for high unemployment. Further stimuli will only trigger inflation and financial instability.” See Andy Xe: The Big Burnout on The Big Picture today.
Geologist and world traveller Brent Cook, editor of Exploration Insights, today offers a foreboding glimpse of how commodity stockpiling and speculation have created false demand for hard assets and equities alike the past few months. See “Pig farmers are making Brent nervous.
Brent cites a China Central Television Channel (CCTV) program documenting and photographing the hoarding of metals throughout the country and pointing out that the speculation has sent a misleading signal to governments and disordered the market. Such speculation and “hot money” have not just ballooned in China, but all around the world, with global fund flows into commodities estimated at a large $12 billion US year to date:
…”gold and now base metals have become speculative investments that in addition to being bought as hedges against inflation and a falling US dollar are the latest get rich quick scheme….over the past few months we have witnessed bought-deal equity financings for individual mid- to junior tier gold companies in the 10's to 100's of millions of dollars, These are being bought at nearly the absolute 52-week highs by funds that I know have not looked into the mining, metallurgical, social or political intricacies that make or break a mine. This fearless hot money jumping into the sector worries me. It always precedes a market bubble and correction…”
This is the tech-wreck all over again. Reckless, intoxicated players have again made world markets a dangerous place for careful investment capital.
When the roads are crowded with drunk-drivers its best to stay away and let them crash into each other. It’s a matter of when not if.
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