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ECB move lifts world stocks

Business Reporters

The Nation

A businessman walks past an electric quotation board flashing the Nikkei index of the Tokyo Stock Exchange yesterday. Tokyo stocks jumped 2.20 per cent, in line with a regional rally following gains on Wall Street and in Europe, after the European Central

BANGKOK: -- Thai investors warned that bond buy would not solve basic issues plaguing euro zone

Stock markets worldwide soared after an announcement by the European Central Bank (ECB) that it would purchase sovereign bonds in the euro area, but analysts and economists warned Thai investors that the upsurge could be short-term as the bond purchase did not address fundamental issues.

The SET Index yesterday closed 2.18 points higher at 1,246.10, the highest level in 16 years and two months. It was an increase of 0.18 per cent from the previous day, with a massive trade volume of Bt34.65 billion, according to the Stock Exchange of Thailand.

The key index peaked at 1,255.89, up 11.7 points, during yesterday's trading.

The rise was small as it was already at a high level: The SET since early this year has outperformed other markets in Asia, up 21.53 per cent year to date.

Therdsak Thaweeteeratham, senior vice president of Asia Plus Securities, warned Thai investors that the SET had reached its peak because of the ECB action. He suggested they be careful of profit-taking one or two weeks ahead.

Markets are waiting to see the results of next Wednesday's meeting of the US Federal Reserve and the ruling of the Constitutional Court in Germany on whether the new European bail-out fund and fiscal pact break that country's laws, Therdsak noted.

Asia Plus said global capital markets soared more than 1 per cent on average. In Europe and the United States, stock markets were up by 1.5-3 per cent.

In Asia, the Nikkei soared 2.2 per cent and Topix 2.25 per cent, Hang Seng was up 3.09 per cent, the Shanghai Composite jumped 3.7 per cent and the Strait Times Index was up 0.75 per cent.

Virabongsa Ramangkura, chairman of the Bank of Thailand's board of directors, expressed caution about the ECB action. He said it was a short-term liquidity injection but in the long run the euro zone would fall apart.

"This measure will not solve real [problems] for uncompetitive economies. The effective solution is that troubled economies have to give up the euro and resume their own currencies, which are the most important tools to rebalance their economies that have suffered from large trade and [fiscal] deficits," Virabongsa said.

He pointed to the success story of Thailand using a weaker baht to ride out of 1997 financial crisis.

Pisit Lee-artham, former deputy finance minister, warned Thai investors that the capital-market rally might not be sustainable. He said the ECB action would only address short-term issues.

The latest action by the ECB has restored market confidence to some extent, as in the past the bank never took such action, said Pisit, who is also president of Association of Provident Funds.

"However, the support is analogous to a dose of Paracetamol for headache relief - it will not solve the fundamental issue of the weakening and high risks of the financial sector," he said.

Pisit also expects the US Federal Reserve also to take action, as the market expects it to launch a third round of quantitative easing by buying bonds in the market. Although the Fed is an independent institution, it is expected to be pressured by politicians in the midst of an election campaign, he said.

"The [action] will cause a market rally, but it will not address fundamental issues such as high unemployment, so financial markets will remain highly volatile," Pisit said.

Suchada Kirakul, deputy governor of the Bank of Thailand, said this action indicated that the ECB viewed the economic situation in Europe as deteriorating.

Chantavarn Sucharitakul, senior director of the BOT's international department, said that after the ECB announcement, troubled economies would also have to ask for bail-outs from the European Financial Stability Facility and European Stability Mechanism, which will demand that those economies restructure themselves. Then it will be important to see how those countries react and implement the conditions.

Banluesak Pussarangsri, executive vice president of CIMB Thai Bank, said the measure was designed to support Spain and Italy, two large economies, so that if Greece, a smaller economy, default on its debts, the problem can be contained.

Meanwhile Paul Krugman, Nobel laureate in economics, posted on his weblog that the ECB was stepping in the right direction but it was not adequate. He suggested that the ECB allow inflation to rise to boost growth and solve debt problems.

-- The Nation 2012-09-08

[tonglen]

That's it boys, roll the printing presses, collateralize your own debts like the US and watch the markets soar in applause!

Pretty soon it will be time to "pay yourself back."

This is like being in debt to a monumental, Biblical degree and then solving it by looking at yourself in the mirror and handing yourself I.O.U.'s.

[rakman]

Let's see.. offer to sell bonds, in some magical bean way, and money runs to the Equities markets.

This is Central Bank to Central bank money exchange only to prop up failing economies. It is kicking the can down the road, and how much of a hair cut will the buying CBs eventually take when those "sanitized" (hidden countries) bonds fail? Previous bond holders of Greek debt have taken a 75% hit in 2 rounds of hair cuts.

How much depreciation of currencies (race to the bottom) will this do? How much of a "tax" (loss of buying power) will this produce on the populace?

And when will inflation kill the price of the bonds, making a huge loss for the buyers (ultimately the taxpayers).

Stay away from bonds, keep a decent amount of gold and watch you equity investments.

FWIW, my .02, some settling of contents may occur during shipping and YMMV

[Rancid]

So the ECB announces it will print money and devalue the currecy as many EU States are more or less bankrupt, the markets go wild with excitement. Volume in markets is down, HFT now controls a large percentage of transactions, unemployment is rising, consumer spending is falling, companies are moving less product, so the value of their stocks...increases.

The effect will be short lived as these kind of enormous structutal problems cannot be solved with money printing, they can only delay the inevitable. These new announcements of economic vandalism will continue and the markets will keep rallying till that one time when they don't any more, and that won't be a good time to be long.