China says it is continuing to buy US bonds “every day.” It doesn’t have much choice. It earns money by selling things abroad. In fact, exports in February were up more than 40% over February ’09. This leaves it with a lot of foreign money – most of it in dollars. What can it do with so much money?
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On the Cyclical Nature of Financial Markets
Most investors believe that markets behave cyclically, like an ocean tide that ebbs and flows. Bull markets give way to bear markets; booms turn into busts; low interest rates yield to high interest rates. And it’s true, markets are cyclical…but not like ocean tides.
Financial markets are cyclical…like an Ouroboros – the mythological snake that devours its own tail. Economic trends are forever in the process of devouring parts of the financial markets. Recessions consume stocks; recoveries consume bonds.
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