Unbridled Market Euphoria Rooted In Optimism And Hope

After a terrible December stock markets have soared with renewed vigor tearing the faces off bears that thought their time had come. A great deal of the market advance has been based on optimism a new trade deal will occur between America and China paving the way for future growth even while data continues to emerge confirming economies across the world continue to slow. It seems much of the current market fervor based on optimism and hope could fall into the category of "irrational exuberance" a term that Allen Greenspan has in the past used to describe unbridled enthusiasm. 


Since reaching a trade agreement with China is not guaranteed or a silver bullet to our economic woes, it is likely that many of those bullish on stocks and predicting markets are about to move into new record high territory have allowed their projections to be influenced by the fact China unleashed a huge amount of new credit into the market. In January, Beijing injected a staggering $685 billion in new credit into its financial system and this money continues to leak out of China causing assets to rise across the globe. Simply put, bulls surmise that since this form of QE has worked in the past it will continue to work in the future. Whether they want to admit it or not this again puts China front and center in their future growth scenario.

Over the year many people have come to see China's economy as invincible, however, that myth may soon be tested. Today China continues to prop up what many China watchers, economists, and investors see as the unpropable, and yes, while no such word exists, when it comes to China's economy it should, for "unpropable" describes the financial collapse that can only be postponed but not stopped. For years, battle-lines have been forming as to whether China's economic growth is sustainable and its future role as a global player. The previous article on this website titled; "China Continues To Prop Up Its "Unpropable" Economy" argued it is not. 

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