Some famous anonymous once said that the City is driven by two mutually exclusive trends – fear and greed. It is about profit-seeking and prudence, the two trends which investors must listen to when they trade.
It’s been very simillar in the last two weeks. The bad news and the dimensions of the financial disaster is now fully revealed, with countries hurrying to plead hundreds of billions of dollars in their rush to save the global financial markets:
Mark Camey, the Central Bank of Canada president, has backed a 21,3 billion USD package for the troubled Canadian mortgages
Christian Noyer, the French Central Bank president, has enforced one of the highest deposit guarantee in Europe – 70,000 Euro. This is nevertheless lower than the 103,000 Euro limit which Mario Draghi, the Bank of Italy president, has put in practice.
Axel Weber, the bank of Germany president, has already pled 35 billion USD for rescuing the Hypo Real Estate bank (which by the way has a new marketing campaign in the emerging markets such as Russia and Romania ??! unbelievable)
Masashi Shirakawa, the Japan’s Central Bank chief, has injected last week 39 billion USD in liquidities in the Japanese market, whilst Mervyn King the Bank of England Governor, has injected into the system 87 billion USD to save 6 troubled banks from UK.
Jean-Claude Trichet, the Central EU Bank Governor, has finally agreed to reduce the refference interest with 0,5% in the eurozone
… and at last, but not at least, Dominique Strauss-Kahn, the IMF chief, has announced that the famous intervention fund is ready to grant loans of 200 billion USD to countries in trouble.
All these amounts add up to much more than the initial $700 billion proposed and injected by FED in the last weeks. Our estimations at doitinvest.com amount the total measures somewhere at $3,500 billion. In other words, the central banks have seized assets and injected into the most advanced world economies something like 3,5 trillion dollars, an amount which could make any government intervention in the last 80 years pale.
The measures and the value of the money “fat” injection in the economies will be a big price to pay in the incoming years. First of all we wil see a rise in the EU and US inflation rates in the next year, since a lot of these money suddenly pumped into economy will go straight to consumption and boost the prices.
Some analysts predict that the stock market will recover in three years or so, which is not so unlikely anymore. With the value destroyed by the recent bankrupcies, the stocks will have to work harder to come back.