The World Is Awash in Stimulus Funding
The global stimulus continues to flow and markets are reacting positively.
Over the weekend, European finance ministers agreed to a $170-billion bailout package for Greece, while China agreed to allow banks to lower their reserves to allow more money to flow into their economy. In my opinion, these are two more examples of how the world is awash with stimulus money.
The European Union has agreed to give Greece their next tranche of money to avoid a disorderly bankruptcy in March, when the country is set to make a very large debt payment, and this new injection of money will be able to cover their debt commitments. The private sector and the European Central Bank (ECB) have come to terms with Greece and their outstanding obligations with the private sector agreeing to receive less than 50 per cent on the amount outstanding to them and the ECB agreed to swap current shorter term debt maturities for longer term debt.
Overall, I feel this removes one more hurdle in the ongoing Euro Crisis. For months, investors have been wondering whether the world economy could withstand a Greek default, and if the euro as a currency would even be around in the next few years. I believe many of these questions have now been answered.
China had its own announcements on how they would try to stimulate their economy. First, the Chinese government decided to lower the amount of reserves banks need to keep on hand after spending the better part of the past few years increasing the amount of reserves banks were required to hold. This is the second time in the past six months banks have been allowed to lend more to hopefully stimulate growth. The European area also happens to be the largest purchaser of Chinese exports, so with the Euro region struggling for as long as it has, China is trying to combat this by further stimulating its own domestic economy.
The second announcement out of China over the weekend was to take a larger role through the International Monetary Fund in helping stabilize the euro region. I believe China understands that this region is extremely important to its growth and prosperity, and thus is finally willing to add more support.
The announcements out of Europe and China are two more reasons why I remain bullish for the markets. You take these announcements coupled with a better economy in the United States and I believe this market can move significantly higher. The world is full of stimulus, from China to the U.S., from Brazil to the U.K. This, in my opinion, is why investors need to own equity investments if they are looking for growth in their portfolios.


