Thursday, August 06, 2009

Liquidity Glut Stuck In Trading Rooms?

There is a comment to Singaporean Anecdotes:
JWG said...

People are trying to take advantage of the current situation not realising that yes it is adding fuel to the fire, but you can see it the other way in that it will finally help to drive a more spending taht is needed in the retail sector.

One may assume and hope that asset inflation helps spending in the retail sector.

However, Citigroup in its daily "China Consumer & Retail Daily Bites" wrote yesterday, click to enlarge, courtesy of Citigroup.

Just to zoom in:
China Information News, a daily paper affiliated with the National Statistics Bureau, expressed concern over high residential property prices in China in 1H09. The three worries about high residential property prices, according to the paper, are 1) crowding out effect on urban private consumption, ...
And now think about it once again. Higher asset prices are not always helping the retail sector:
1) as people are more focusing on speculation in the asset markets, and diverting attention from productive investment in the real economy (so probably creating, e.g., additional jobs)
2) created wealth is not necessarily flowing into retail sector, as it may be accumulating among individuals with already high wealth and low additional propensity to spend (a problem of inequality of income) ...

especially, if the liquidity glut and the reflationary trade is stuck in the trading rooms (of, mostly, banks)!

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