The Problem of Throwing More Money at The Recession
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Trading Features / Strategies from Simon Denham of Capital Spreads.
It is nice to see that the politician’s favourite method of problem solution is being used once again to see off the economic woes. The huge sums being proposed to prop up an ailing world economy seem to have lost all sense of reality.
A year ago talk of a US $300bn bank bail out was being grasped as a sum almost too vast to imagine, today we look past these mere foothills towards the Himalayas on the horizon.
Quite rightly the markets are taking heart from the mere prospect of such a huge fiscal stimulus as the companies that will probably benefit the most will be the major players. The unpalatable fact is that the funding for all of this must come from somewhere.
The G20 nations are struggling to sell their issuance requirements already and the yield curve from 3mth to 10 years is now almost 3% in Gilts, T Bonds and Bunds and far more for corporates.
FTSE 100 companies are looking at having to offer yields of over 8% to get 5 yr bonds away when short term rates are at only 0.5%. The cost of long term cover is forcing more and more companies to borrow in the short term money markets. A policy that Northern Rock on its way and that was when the yield curve was actually flat.
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'The Problem of Throwing More Money at The Recession' edited by DB, updated 03-Apr-09
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