Asian Stocks Rise Amid Optimism on China Stimulus Outlook. That is one of the title of the article in today's Bloomberg's website. The title really got me baffling. It really seems that financial markets belongs to another planet while the rest are on Earth.
Well, I am no economist or financial expert but what I find wrong with the title is that the markets are "happy" that there is now a higher possibility of China stimulus. What prompted the higher possibility of China stimulus? Weak economic data from China and we are "happy" because China has shown signs of a weakening economy?
Of course, having stimulus will definitely buoyed the markets because it means more money is available in the market but that is definitely not something to be "happy" about. If the market rises because of more stimulus, it simply means that the financial markets are really a big "gambling" table and people are just rushing to "grab" as much money before the music stops. I thought share markets were created so that people can invest in a company which has the potential for good profits in the future but lacked the capital to realise their vision in the present and hence, the need to raise capital for expansion. Now, share markets are really like a big pyramid scheme. You just get more "suckers" buying into the scheme and once the buying stops, it will just collapse and then re-start again.
The current scenario is like a company (China) who is struggling because their clients (Europe) is not buying their products as much as they used to do. So, profits are going to go down. So, the company has decided to give all their employees higher salary (stimulus) so that they are going to buy more products from their own company to offset the reduced orders from other clients. And their clients are also telling the company's staff that they are saving too much. They should spend their additional salary and buy more products to keep the company afloat. The key question is are the employees buying something which will add-value to their future earning power? It is okay for stimulus if it is for construction of a much needed transportation system, university, etc. (not construction of ego-satisfying monuments) as it will create jobs and demand for products and at the same time, the completed infrastructure will add-value to the future. It is like a company investing to upgrade for example, their IT infrastructure. What if the stimulus (extra money) only results in higher stock price valuation, higher house prices due to speculation (not due to actual demand for first-time housebuyers), increased purchase of luxury goods, etc? This is like the company staff buying all the extra T-shirts, handbags, shoes, etc. that the company produces to keep the company's profit. It doesn't sound very sustainable isn't it?
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