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Monday, April 20, 2009

Possible Second Round of Panic Hitting Financial Markets

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The panic is over. The panic has yet to begin. Which is it? Or is it both?

We'll take both. The panic in financial markets subsided in March and stocks rallied. Stocks didn't make new lows on bad news and the bad news (as bad it was) ceased to get more bad, which was good.

But what about Main Street, what's going on there? According to the Westpac-Melbourne Institute consumer index released yesterday, Australians were exactly 8.3% more confident in early April than they were in April March. See what a dose of low petrol prices, declining interest rates, and government cash can do for you?

We were searching for all sorts of entertaining metaphors to explain this, but the simplest explanation is good enough: be very afraid. The government has done its part to disarm people's natural sense of caution by showering them with cash. But there is plenty to be afraid of, and plenty to suggest these confidence numbers will plummet in a few months.

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