Friday, August 21, 2009

Bubblenomics

China's Credit Bubbleicious Trade Balance Pain.

"Recent German economic data has been interpreted as indicative of a renaissance in the Eurozone's primary economy. Aside from the fact that Germany is ill prepared to handle its so-called "second credit crisis wave" (the ECB having much less free reign over printing wheelbarrows worth of Euros may have something to do with this), looking purely at GDP components one would note that a primary function of this anticipated growth comes primarily from a mathematical contribution resulting from an increase in net exports.

Yet the real wild card is China, where estimates for export decline approach the 20% mark, after a prior year increase of 20%. This is a huge hit to the Chinese economy and is the primary reason for the $1.1 trillion in increased lending, whose primary purpose is to spur replacement demand with traditional export partners reeling." from Zero Hedge.

What is becoming obvious is that the huge liquidity flows have been used by all parties to blow another bubble ...in commodities and the equities markets (arguably commodities themselves).

As a result of the recent plunge in earnings and recent stock market rally, the PE ratio spiked and just peaked at 144 – a record high. Currently, with 97% of US corporations having reported for Q2 2009, the PE ratio now stands at a lofty 129.



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