Markets Rally as China Sets to Aid European Bailout

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Details to Follow…

Stocks up 339 points on the Dow! Gold at $1,747! Oil over $90!

Forget all of our worries about another big swing down in asset prices…about a Japan-like slump that could last a generation…about gold at $1,200 and the Dow at 6,000…

..we were wrong, wrong, wrong- the markets rally!

At least, that’s how it looks today. Stocks are on course for their best month since 1987…or 1974…depending on which report you read.

Gold has shaken off the blues…it’s rockin’ and rollin’ again…and seems to be headed back toward $2,000 by the end of the year.

And oil, too. The slippery goo — the lifeblood of the modern economy — seems to be going back to $100.

Go figure.

What set off yesterday’s big blitz to the upside? Two things…

..first, the Europeans seemed to be getting their act together. There’s a big headline in today’s Financial Times:

China set to aid Europe bail-out.”

The Chinese are looking at an investment of up to $100 billion in Europe’s stabilization fund. Details to follow…

The Greeks are to get another $130 billion of bailout funds. Details to follow…

Bondholders are going to go along with a 50% haircut. Details to follow…

And the EFSF (the stabilization fund) is to increase to $1 trillion or more. Details to follow…

The marching band set the pace yesterday. But in the parade of details to follow we wouldn’t be at all surprised to find a few sour notes. And we wouldn’t be at all surprised to find that investors sell their stocks when they hear them.

In resume, the Greeks can’t pay their bills because they don’t have enough money…which causes the Greek economy to go flat…reduces revenues to the government and makes it even harder for them to pay their bills. This problem will be overcome by borrowing from other Europeans, who can barely pay their bills either. And, thank the mischievous gods, China has come to the rescue too. China has real money…which it makes by selling products to the people who can’t pay their bills.

But investors are ready to believe anything. First, they thought they could borrow and spend their way to prosperity. Now, they think they can avoid the consequences of too much borrowing, by borrowing from each other.

We’ll keep an eye on it, dear reader, and let you know how it works out. But for now… the markets rally.

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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