Stocks begin rebound in Australia and Hong Kong

Jan 22 2008, 10:30pm


Its 10:30 in evening in Montréal but already tomorrow early afternoon in Melbourne and the Australian papers in addition to reporting on the tragic death of young acting star Heath Ledger, a kind of Australian James Dean, in New York, are also discussing the rebound in the stock markets .

Already the Australian market is up 5 % and the Hong Kong market up 7 %. Both markets had suffered large losses the day before . Today or should we say tomorrow's rebound if it is maintained until the markets close indicate that the actions of the Fed have have had the desired effect on markets and hopefully upon the general economy in the weeks and months ahead. The Hong Kong monetary authority also cut interest rates by 75 basis points following the US lead. It is unlikely that Australia's central bank, the Reserve Bank of Australia will follow suit as they are apparently still fixated on the rate of inflation which the headline rate announced as 3 .8% although the core rate is 3.2 %. But the global nature of the sell-off may well pursuade them to lower their rates or at least avoid increasing them.
The Australian economy is both resource oriented like that of Canada and heavily dependent upon exports to Asia with a number of their leading manufacturers and fabricating firms operating plants and exporting goods in China, Japan and Korea.

I expect it to fare well despite the pressure of any slowdown in Asia so long as the drop in commodity prices is not too severe.

It is now 7:00 am the next day and the Asian markets have closed .The Shangahi, Hong Kong and Australian and Tokyo indices to a lesser degree ended recovering most and in some cases more than they lost the day before. Now we will see if this lasts or it is simply a brief one day recovery that after having drawn buyers back in search of bargains the markets fall again in a bearish way.

In Europe however because both the highly dogmatic and monetarist European central bank and the Bank of England are foolishly refusing to cut their interest rates markets are down so far today by 2 %.


One way or another the markets will be very   nervous for awhile. We shall see if the positive news from Asia has a positive impact upon the markets in New York and it ignores the results in Europe.

The Europeans are saddled with a very rigid central bank still obsessed with inflation and very high interest rates behaving according to strict monetarist logic.This will result in a recession in Europe that is more severe than need be.

Hopefully North American participants and traders will follow their own navigational stars. But we shall see.

1:00 pm Jan 23, 2008

The New York market is down some 230 plus points while Toronto is down 400 points. Unless buyers come to the rescue in the final hours of the market one would have to say that irrational pessimism abounds as the herd moves to sell its stocks led by the financial houses and professional traders. We shall see at 4:00 pm

At the same time there has been a debate apparently at Davos among Larry Summers and George Soros and N. Roubini to name some of the participants about who is to blame for the mess. As far as I can tell from the reports they are blaming the Fed not for having been too rigid in raising rates but for having been too lax in keeping them too low for too long permitting a bubble to emerge. Now its one thing to criticize the Fed for not having excercised proper regulatory oversight over the financial derivatives and the mortgage market.

I would agree that regulatory oversight was way too lax. However I would also point out that except for Soros other notables welcomed the move to deregulation, privatization, big bang global integration with little or no criticism that it might result in a financial meltdown.

But the Fed was right to lower rates drastically after 9-11 and right to keep them low to prevent a deep recession at the time. More regulation and control over financial derivatives and banking absolutely. But higher rates for longer than is necessary absolutely not.Furthermore , the operation of   central banks according to the new classical monetarist macroeconomic model built around NAIRU has been disasterous.

At the very least they need to counterbalance this with the notion of the natural rate of inflation which indicates when lowering inflation targets too low that prolonged higher unemployment can result.(See my Adelphi paper on this posted on the internet easily googlable)

In other words there needs to be more balance in operations that pay equal attention to price inflation as well as excessive unemployment and sustainable growth.

Now :3:38 pm and the markets will close shortly both Toronto and New York have recovered well and it looks as if   NY will end slightly up and Toronto slightly down.

It's now 4:07 and NY is up 298 points on the Dow Jones and Toronto up 16 plus points on the TSX.An interesting roller coaster day.

10 pm EDT We have come full circle its early afternoon in Australia Thursday the 24th of January and the markets in Hong Kong, Australia and Japan are all up and doing well.