Risks in speculation over Credit crisis, recession, oil dollar Dr. Warren Huang
May 17th, 2008Comment by Wall Street Journal Market Beat Blog- May 17, 2008 at 1:32pm
Stock market bull are struggling to make sustainable rally bsed on oil prices plunge, at today oil making 128 new high, it try to use Benanke, Paulson optimimic view on credit crisis and second half economic recovery, the dollar rebound to soaring oil, inflation related rate hike support. Ignoring miserable back ground, consumer confidence sank to 1980 deep recession low, and houjsing prices and single family start continue making new low, despite rebound in apartment building, on top of 10 month unsold inventory
Market bulls are getting irrational , emotional in high speculative mood repeating last summer, use any piece good news from M/A, IPO, oil, dollar, Fed, to discard all bad news.
hope we do not repeat lasst summer betting on the wrong direction. Do not expect raise oil production, strength of dollar to drag down the crude oil price in peak summer demand.
From my 30 years tracking of global crude oil price price mechanism, dollar and demand carry the same weight on price movement, and even dollar upword potential is limited, given prolong, US housing market sump, Fed will not be able to raise too much rate to cool of the inflation, to kill the housing markets. so, oil still have upword potential driven by stimulus package support spending. details on www.osawh.com/Globaloiln.htm www.osawh.com/currency.html www.osawh.com/mortdefa.htm www.osawh.com/fund2008.htm
US and China central banks did rate rate to cool housing, Fed cut money supply growth from 6 % to 2005 3.5 %, after Greenspan 17 raise rates, housing sales and price start peaking out in 2006. However, after Bernanke stop rate hike in 2006, money supply growth up from 4 % to 6.5 % in 2007, excessive liquidity resulted subprime mortgage crisis,
If Fed continue adapt tight money policy credit rating through 2007, it will stop many questionable sub prime loans. despite housing bubble may burst, we will be already recovered now.
Fed should not yield to political pressure in dealing with asset bubble, same was true for 1996- 1998 IT stock prices bubble identification and continue credit tightening ing. will avoided 2000 bubble burst ( Nasdaq would just up to 3000 not 5100, much small bubble easier to deal with.
China follow US Fed, enjoyed macroeconomic and housing market soft landing in 2005 inflation down to 1.2 % after China Peoples Bank reduce the money supply growth from 24 to 13, housing price was up 200 % in 2004, plunged 30 % in 2005, stock prices plunged from 2000 to 1100. However, after CPBC follow US FEd stop credit tightening, money supply explode from 15 % to 20 %, stock market soared from 1400 to 6300, housing prices up 300 % again in 2007. and forced CPBC 6 times rate hike, 14 time raise bank deposit ratio to remove excessive liquidity from housing stock markets wealth gain, stock prices plunged 50 %, housing prices still up 13 %, despite housing sales slump,
I warned on this blog last Sept that US housing price slump continue into this summer despite aggressive rate cuts, drag economy into recession, stock market bear correction.
We still have one third cities housing prices continue growing bubble, making bigger bubbles despite housing sales slump and doubling foreclosure , mounting job cuts, slump inn consumer confidence.This proactive, structural US national and regional housing prices, and mortgage defaults simulation forecast years, ahead national , regional housing price.
So, the answer is yes, Asset prices can be identified and asset price bursts, credit, financial crisis can be avoided by a decisive , independent central bank applying proactive structural decision simulators and predictive monetary policy, economic, fiscal policy control the bubble growth, before it getting too big.
Theseresults have been presented to 12 countries central bank governors, risk management conferences last 12 years, covering the causes, oset, dpread, recovery, early warning of global financial crisis and asset prices bubble burst. details on www.osawh.com/riskm.html www.osawh.com/Fedcrisab.htm www.osawh.com/centmaf.html www.osawh.com/recession.html
www.osawh.com/mortdefa.htm