Of Course Markets Are Going Higher

20 February, 2012
 

Of Course Markets Are Going Higher
 

• China Reserve Requirements Cut
• Greek Deal in the Bag
• Gold Safe Haven Consolidation

China has cut the reserve ratio requirements for banks to 20.5%. Yes, that’s right the reserve requirement for banks in China is 20.5%. China continues to deliver the world’s best economic management, fine tuning a variety of measures to as near as perfectly influence different sectors of the economy, sometimes in opposing directions. Yet they make it work, and work well.

If the US had 20% reserve ratio requirements there would not have been a sub-prime crisis, there would not have been a GFC, even with all the over supply construction. It just would not have happened. Compare that policy debacle, and that is what it was, with a strongly growing economy, increasingly and dominantly domestic demand driven, massive population shifts, and still once the authorities decided to, they have delivered property price stability across the nation, with overall economic growth still close to 9%. A fantastic achievement you would be hard pressed to find anywhere else in the world.

Equity markets, especially Australian resource stocks, will respond positively to this latest fine tuning by China.


Greek resolution is in the bag. Should any member of the union vote against this deal, they would be considered a pariah by the majority, and especially by France and Germany. That would be a far greater price to pay than the funds being requested for the rescue package.

As we have said all along, Europe is already stronger for the experience. It will be a closer and more responsible union, and go from strength to strength. Rather than just the resolution of a difficult period, this is the beginning of a new enlightenment, well at least fiscally! I know it sounds repetitive, but Europe will be, and most probably already is, the most fiscally responsible region in the world.

While some argue this will be a drag on economic growth, what the situation really does, is create a new beginning for the already healthy private sector, and a greater availability of capital available to that private sector. Think less public spending equals more productive investment.

While many talk of fear of recession, I see this as being the start of a new golden age in Europe.

Equity markets can only respond positively, and begin that faster rally I have been speaking of, as the Greek package is approved.


Gold is consolidating as more and more good news emerges around the world, just as forecast here in The White Crane Report, for exactly now, many months ago. It was always going to be mid Q1 when the positive data of Q4 would emerge and prove the bears wrong yet again, and so it is. In reaction to this good news, the economic bears, false gold bulls, and there have been some stand out laughable famous major league personalities of late, who have suggested buying gold as a hedge against inflation, recession, contagion, and all that other nonsense, are also being proven wrong.

This good news flow in the face of those who do not understand the contemporary world or economics, will see many who bought gold for all the wrong reasons of “fear”, starting to exit quickly before they lose as much money on their gold bet, as they have being short equities for the past six months. Yes, there will be some selling pressure about, and this will cause substantial consolidation, but it will not stop the rise of Gold.

It has always been argued here, and I was probably about the most accurate forecasters of Gold in 2011 with a target high of US$1,950 on this basis, that you should buy gold for the “good” reasons of strong economic growth and prosperity in the “new first world”, particularly in China and India. It is not difficult to understand why the gold price would rise when the two most populace nations in the world, with cultures that value gold even more highly than we in the west, are also the fastest growing economies in the world.

When you add to this higher industrial demand, and last but not least, increased central bank holdings by these same major economies. Then Gold is still going well beyond US$2,000, probably $2,600. Does it happen this year or next, probably next, but it will still deliver a strong return this year post some confused consolidation just now. Keep buying Gold on the dip, and for lots of good reasons.


Overall the global prosperity story is finally being seen for what it is, a reality.


Clifford Bennett


Market Directions will be available later today, apologies for any inconvenience.

 

Clifford Bennett
Chief Economist
White Crane Group

Sydney, Australia.
+61 (0) 423 950 427
clifford@whitecranegroup.com.au
www.whitecranegroup.com.au