Bubble On, Bubble Off, Bubble On, Bubble Off . . .

Let's talk China. It was not so long ago that they were increasing bank reserve requirement ratios to a high 21.5% to cool an overly hot real estate market, a/k/a bubble, fueled by the same easy lending that cooked us here in the U.S. Now the economy there, rosy by most countries' standards, is too slow to support its massive population, so last week it cut the reserve requirement to 21% and is fully expected to cut more in January. This, in addition to some coordinated central bank moves in Europe and the U.S., is credited for last week's rather incredible market advance.

But here is the problem - China was right about the bubble and right to cool it. Most global investors, as it turns out, predict a banking crisis in China in the next five years - go figure - and China is now doing steps to make it worse. Makes you kind of wonder why the markets responded positively. Well, they are a tad fixated on the short term and the need for China to overheat its economy to keep the world from falling into an economic black hole. They do not care what happens there in five years as long as it moves to keep things chugging along for the next few years. Just my take, of course. Hopefully by the time their bubble bursts the rest of the world will be back on its feet and able to keep is chugging. Any takers on this prospect?

http://www.bloomberg.com/news/2011-12-07/poll-investors-predict-china-bank-crisis.html

By the way, holding your breath about the EU? Good luck with that. Read the following and get a grip.

http://www.nytimes.com/2011/12/08/business/global/as-europes-bond-market-dries-up-traders-fear-for-jobs.html

http://www.reuters.com/article/2011/12/08/us-ratings-eu-idUSTRE7B62GQ20111208

http://www.bloomberg.com/news/2011-12-07/japanese-futures-little-changed-before-summit-australian-shares-decline.html

http://www.reuters.com/article/2011/12/07/us-citi-jobs-idUSTRE7B61P720111207

I could attach a lot more, but you get the picture. Seriously, the lipstick is off these PIIGS.

Disclosures: None.