Fed « Dr Alf's Blog

This is an interesting short article from the Economist and WELL WORTH A READ. Check it out!

Companies and the economy: The mismatch | The Economist.

It’s perhaps no surprise that big companies in the US are doing very nicely thank you. The outlook for US labor is less rosy. With tighter monetary policy announced by the Fed, especially on QE, big companies will need to start investing heavily to get a greater foothold in major growth markets like China.

With the UK and the Eurozone trailing the US in terms of economic recovery, it’s interesting to speculate:

Will UK and European businesses miss the boat in major growth markets like China failing by invest in the required skills, technology and business development?

English: The Marriner S. Eccles Federal Reserve Board Building (commonly known as the Eccles Building or Federal Reserve Building) located at 20th Street & Constitution Avenue, NW in the Foggy Bottom neighborhood of Washington, D.C. Designed by architect Paul Philippe Cret in 1935, construction of the Art Deco building was completed in 1937. Its 2009 property value is $109,029,200. (Photo credit: Wikipedia)

Any thoughts?

English: Emerging Markets without China and India (Photo credit: Wikipedia)

This article by Ambrose Evans-Pritchard in the Telegraph is a GOOD READ. Check it out!

Emerging markets crushed by double squeeze in China and America – Telegraph.

In recent months, investment in stocks and shares seemed a one-way bet, with easy money to be had. This week, the US Fed has further clarified its intentions with regard to “tapering” off QE (quantitative easing, essentially printing money to buy financial assets). In essence, the Fed’s attempt to normalize matters has brought back more uncertainty to financial markets. The good news is that the Fed believes that the US economy is recovering in spite of austerity.

On the other hand, following the Fed’s announcement financial markets have all had a sharp downward correction. The gradual tightening of US monetary policy will cause interest rates to start to rise from their historic low. The trend towards higher interest rates will be bad news for countries still stuck in recession, like the UK and Southern Europe.

However, as Ambrose Evans-Pritchard points out emerging markets have an additional problem, namely the credit crisis in China. The emerging markets have seen economic activity and financial markets artificially inflated because of US money slashing around because of QE in recent years. Now the emerging markets are waking up with hangovers.

So what should we conclude?

I agree with Ambrose Evans-Pritchard that China has the fire-power to withstand a stormy period of economic adjustment. Also with the US economy recovering more strongly, financial markets will continue in an upward direction despite a short-term period of correction.

Sadly, the double squeeze will probably make matters harder for European countries who are following policies of excessive austerity, like the UK and Southern Europe.

Any thoughts?