China announced a long-rumored 4 trillion yuan ($586 billion) stimulus plan to invest in low-rent housing, infrastructure in rural areas, as well as roads, railways and airports to spur expansion, helping sustain chinese growth . It will also increase purchases of grain to support the price for rural farmers and allow tax deductions for fixed asset investment as previously rumored. The funds, almost 1/5 of China's 2007 GDP, will be used from now till end of 2010. This investment dwarfs the stinulus plan outlined by Treasury and Fed, and gives all the more reason for Fed to announce a second leg of stimulus plan.
Though the news is pretty positive for the asian markets, there are doubts on the amount ($586 M). THough the notional amount is 4T Yuan, the incremental spending is just 1-2 T yuan. however, the news and the spending would benifit the housing and infrastructure industries in China, and might as well life the prices of Steel, Iron ore, building materials and indirectly shipping. In addition, this stimulus plan would provide the much needed employment for the unemployed and help restore consumer confidence.
It would be interesting to see how Chinese Govt would finance such a stimulus plan. Over the years the govt spending has increased at 30%, much above the rate at which the revenues increased. With falling corporate profits, planned tax cuts, rebates the fiscal deficit is definitely going to bloat, and well, it is not good going forward for China.
Though the prices of commodities, asian and other international markets saw a rebound, US markets quickly erased the early gains and ended in red for the day. Well, the fear of pulling the plug on GM over shadowed the positive news. Deutsche Bank issued a SELL recommendation on GM and with a target price of ZERO.. yes absolute Zero!!! The company is not worth anything for the current shareholdders. GM is currently trading at a 62-year lwNews of Circuit City going belly up also added to the market panic.
Ethanol Stocks:
PCIX (PAcific Ethanol), Aventine, Vera Sun.. down big YTD, though there is tremendous govt backing for ethanol use in gasoline. Govt has mandated production of 11.1 Billion gallons of ethanol to be used in gasoline, and the current production capacity very much facilitates it. But the questions are, would the US consumer revert back to his Normal driving habits, and bring the gasoline demand to peak levels again.. and would the oil trade at above 100 dollars level again!! . I do not know the answer, but by the way the market is treating these stocks, the answer should be NO!!.
Five Factors That Give You The Big Picture Of The US Dollar
Song: "The world I know" - Collective Soul
Mood: Confused!
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